Bank Islami, KASB Bank Amalgamation Costs Rs. 3.5 Billion Loss to Treasury: AGP Report

SBP

The merger of Bank Islami and KASB Bank has once again let AGP – Auditor General of Pakistan in an awe, raising issues in an audit report for the financial year 2017 – 18. The issue was highlighted about sometime before when lead bankers disposed of the shares of KASB Bank for only Rs. 1,000.

Auditor General of Pakistan office suspected that the SBP gave unjustifiable favors to Bank Islami during the union. The merger of KASB and Bank Islami caused a loss of Rs. 3.5 billion losses to Pakistan.

AGP’s Report

The office issued a report in which it opened some wrongdoings in the deal. KASB bank was pushed to stop all its operations because of not meeting the constitutional paid-up capital prerequisite of Rs. 10 billion. News also mentioned major banks including the MCB Bank showing interest to buy KASB.

A MoU was penned between MCB and KASB too. Though, SBP came in between and levied a cessation after which the deal could not take place.

Moreover, KASB Bank sponsors were also able to put in $100 million ins from Cybernaut Investment. The investment company stated in 2015,

“Our group has conducted preliminary due diligence on the bank, and we are pleased to inform you that we will be keen to inject capital to restructure the bank.”

The company funded $100 million in 2015 only.

But State Bank of Pakistan came in between again and refused to permit Cybernaut for opening an escrow account.

KASB’s Stake

The bank was sold for an exceptionally bottom price of Rs. 1,000 to Bank Islami. The report mentions that KASB Bank owned Rs 57 billion amount of banking assets. The overall valued assessed for these was Rs. 6.6 billion when sold for Rs. 1,000.

Nevertheless, the market value was never taken into account by State Bank before the merger of KAB and Bank Islami resulting in a big loss to the shareholders of the bank including national exchequer.

Once the deal happened, SBP gave Rs. 5 million to Bank Islami at an interest rate of 0.01% per year. The reason for this offering was to cope up with losses. The report mentions,

“The grant of financial assistance and credit line shows that BankIslami was not in a financially sound position to manage the losses of the KASB.”

Moreover, SBP has issued an offering of Rs. 15 billion for Bank Islami but the amount has been revoked resulting in loss of Rs. 435 million.