Concessionary loan: SBP grants Rs20 billion to BankIslami

Central bank gave the money after KASB Bank was merged into BankIslami

Shahbaz Rana July 14, 2015
Central bank gave the money after KASB Bank was merged into BankIslami. PHOTO: FILE


The State Bank of Pakistan has given a Rs20-billion concessionary loan, including Rs5 billion at an incredibly low rate of 0.01%, to BankIslami to meet capital requirements following the amalgamation of KASB Bank into it, raising transparency concerns.

Two members of the SBP central board of directors confirmed to The Express Tribune that the central bank has extended Rs20 billion to BankIslami. The money was given after May 7 - the day KASB Bank was merged into BankIslami.

It has highlighted transparency issues pertaining to the BankIslami and KASB Bank amalgamation, as the central bank did not extend the facility through competitive bidding.

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In protest against the move, a minority shareholder of KASB Bank has lodged a complaint with the National Accountability Bureau (NAB). The complainant, Shaheena Wajid Mirza, requested the anti-corruption watchdog to investigate the SBP governor and other officials of the central bank and Ministry of Finance for alleged corrupt practices and misuse of authority.

She also complained against AF Ferguson - the chartered accountant firm, which valued KASB Bank at just Rs1,000.

The Rs1,000 valuation wiped out 1.95 billion shares, held by 9,000 shareholders. By paying Rs20.5 million in consultancy fee, the SBP got a totally manoeuvred and fraudulent valuation report from AF Ferguson, alleged Shaheena.

She said the SBP governor and other officials concerned cheated the federal government, misrepresented the fundamental facts regarding financial health of KASB Bank and obtained moratorium in sheer abuse of Section 47 of the Banking Companies Ordinance 1962.

Shaheena, who is daughter of late secretary finance HU Baig, had acquired 833,639 shares of KASB Bank and is now fighting to get a return after the Central Depository Company refused to issue her certificates, according to the complaint filed by her.

This has given a new turn to the legal battle being fought by shareholders of KASB Bank in cases in Lahore and Sindh high courts, seeking a fair price for the 1.95 billion shares.

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On May 7, the SBP merged KASB Bank into BankIslami after the former could not meet the statutory paid-up capital requirement of Rs10 billion.

In her complaint, Shaheena alleged that the central bank gave Rs5 billion at 0.01% to BankIslami for 10 years and for this unlawful favour the SBP is going to suffer a loss of Rs3 billion on account of lower interest rates.

The SBP has also given BankIslami an additional Rs15 billion at a concessionary rate on rollover basis for six months, according to the complaint.

SBP’s version

The central bank neither denied nor confirmed that it gave the Rs20-billion preferential loan to BankIslami. It also refused to disclose lending details.

“All actions pertaining to moratorium and amalgamation scheme of defunct KASB Bank were carried out under the legal provisions available in the Banking Companies Ordinance 1962 and SBP Act of 1956, with the primary aim to safeguard the interest of depositors,” said the SBP in a terse reply.

It added no further statements could be made as certain aspects of the matter are currently sub judice.

BankIslami was among five banks that were also not meeting the minimum paid-up capital requirement, revealed the court filing of a former majority shareholder of KASB Bank.

Read: KASB Corporation: A slow and painful dismemberment

Nasir Ali Shah Bukhari that had 43% stake in KASB Bank has filed a petition in the SHC, seeking fair market price for its shares.

The court filing also stated that KASB Bank had Rs5.86 billion worth of deferred tax assets and book value of its real estate assets was Rs2.9 billion, which was not considered by AF Ferguson during evaluation.

While KASB Bank was valued at Rs1,000, Bukhari stated that Ernst and Young consultancy firm put the bank’s net equity at Rs2 billion as of December 31, 2014.

The Cybernaut Investment Group of China had offered up to $100 million investment to bridge the capital shortfall faced by KASB Bank, but the SBP rejected the offer.

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Bukhari, in his petition, also highlighted the issue of conflict of interest, saying AF Ferguson was also the auditor of SBP and Bank Islami, therefore, its Rs1,000 valuation report could not be considered impartial.

Published in The Express Tribune, July 14th,  2015.

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ahmed abubaker | 8 years ago | Reply the all the shareholder of kasb bank should unite and challenge in supreme court with out more delay. it has been proved that its only a corrupt practice to facilitate the mansha group.
Abu Noor | 8 years ago | Reply Its a day light robbery by Ishaq Daar and his friends. If SBP can give Rs20bln funding line to Bank Islami, then why not similar facility can be given to KASB Bank to stay it afloat? If the problem was with Bukharis, then SBP can even go with hand-picked management to run this bank through funding line. The fact of the matter is that SBP has been failed to protect the minority shareholders in KASB Bank.
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