AIRLINK 62.48 Increased By ▲ 2.05 (3.39%)
BOP 5.36 Increased By ▲ 0.01 (0.19%)
CNERGY 4.58 Decreased By ▼ -0.02 (-0.43%)
DFML 15.50 Increased By ▲ 0.66 (4.45%)
DGKC 66.40 Increased By ▲ 1.60 (2.47%)
FCCL 17.59 Increased By ▲ 0.73 (4.33%)
FFBL 27.70 Increased By ▲ 2.95 (11.92%)
FFL 9.27 Increased By ▲ 0.21 (2.32%)
GGL 10.06 Increased By ▲ 0.10 (1%)
HBL 105.70 Increased By ▲ 1.49 (1.43%)
HUBC 122.30 Increased By ▲ 4.78 (4.07%)
HUMNL 6.60 Increased By ▲ 0.06 (0.92%)
KEL 4.50 Decreased By ▼ -0.05 (-1.1%)
KOSM 4.48 Decreased By ▼ -0.09 (-1.97%)
MLCF 36.20 Increased By ▲ 0.79 (2.23%)
OGDC 122.92 Increased By ▲ 0.53 (0.43%)
PAEL 23.00 Increased By ▲ 1.09 (4.97%)
PIAA 29.34 Increased By ▲ 2.05 (7.51%)
PIBTL 5.80 Decreased By ▼ -0.14 (-2.36%)
PPL 107.50 Increased By ▲ 0.13 (0.12%)
PRL 27.25 Increased By ▲ 0.74 (2.79%)
PTC 18.07 Increased By ▲ 1.97 (12.24%)
SEARL 53.00 Decreased By ▼ -0.63 (-1.17%)
SNGP 63.21 Increased By ▲ 2.01 (3.28%)
SSGC 10.80 Increased By ▲ 0.05 (0.47%)
TELE 9.20 Increased By ▲ 0.71 (8.36%)
TPLP 11.44 Increased By ▲ 0.86 (8.13%)
TRG 70.86 Increased By ▲ 0.95 (1.36%)
UNITY 23.62 Increased By ▲ 0.11 (0.47%)
WTL 1.28 No Change ▼ 0.00 (0%)
BR100 6,941 Increased By 63.6 (0.92%)
BR30 22,802 Increased By 233 (1.03%)
KSE100 67,142 Increased By 594.3 (0.89%)
KSE30 22,090 Increased By 175.1 (0.8%)

How will Pakistan's economic historians look back at the KASB Bank episode? And where will they locate the root of the problem? There are no easy answers to these questions, but one thing is for sure that they will quibble over a host of facts, figures and interpretations.
Some will argue that the central bank and Ministry of Finance should have allowed the troubled lender to be taken over by National Bank of Pakistan or another large bank, capable of absorbing a smaller bank with its weak balance sheet or that the SBP should have stepped in to cleanse the board of directors; inject new management and transform the entity before auctioning to another party along with the banking license.
Others would say that the joint committee SBP-SECP committee should also have protected the minority stakeholders or that the recommendations of that joint committee should have led the recourse in this case.
There are multiple precedents where the central bank came to rescue an ailing bank. After its failed privatization, Allied Bank saw its equity turn red. But SBP stepped in, rehabilitated it and sold it again to a new buyer. Today it is among the best performing banks in the industry.
A more recent example is that of Punjab Government pumping equity into the sinking Bank of Punjab. Within a few years, that bank was back on track. There are other examples from the 1990s and 1980s that illustrate the role of the central bank as a lender of the last resort. But the institution did not rescue KASB Bank - one may wonder why?
And the trail of query will lead many to question why the authorities did not act sooner, given that KASB Bank had not just failed to meet key regulatory requirements; it seemingly exhibited very little resolve to do so.
The imposition of a moratorium prior to the banks sale also has its critics. The regulators defence, provided in a meeting with BR Research, was that any news of other banks conducting due diligence on the bank may have caused a bank run on that institution. On the other hand, a bank valued at Rs1,000 probably did not require very extensive due diligence from prospective buyers.
Many bankers feel that the unbecoming of the KASB Bank could have been much less dragged out and more honourable if not for the egos involved. The principal could have opted to sell the bank to another on many occasions; and for a price better than the token single blue coloured note.
As usual, the conspiracy reported on the television was the most pedestrian of all contentions. The decision to not sell the bank to an unverifiable, untested Chinese investor was right and beyond the waddling fingers of TV pundits.
In between all this, the one thing that historians will likely agree upon is that it all comes down to the governments failure to give the central bank its due independence and the autonomy it deserved. Hadn't the central bank been under the influence of the Zardari government, it would have tightened the screws around KASB much earlier and prevented the matter from going down this alley.
And a better solution was available even in more recent times. The central bank is providing a long-term loan of Rs5 billion to support the equity of the amalgamated entity. What kept the central bank from making such an injection prior to the sale, with the condition of overseeing an overhaul within the bank? As it went down; the depositors of the bank suffered by not having access to their deposits for six months.
Also, if the bank had to be sold, why was a conventional bank sold to a small Islamic bank? Amalgamation will, in all probability, face issues in collating their assets. KASB Bank has a decent asset portfolio which could have been used well by a large-sized bank and equity would not have be an issue there. The only thorny issue which kept that from happening was Rs20 billion in Iranian money that kept the larger banks away from KASB. What about that money? How would it settle now?
There are gray shades in KASB deal and its handling was not at all appropriate. Lets hope the whole fiasco ends in bringing synergies for the amalgamated entity and the depositors will regain lost confidence on the central bank as a lender of last resort.

Comments

Comments are closed.