AGP says BankIslami-KASB bank merger resulted in Rs3.5 billion loss to national exchequer

LAHORE:  A recently released report of the Auditor General of Pakistan (AGP) office has again alleged the BankIslami-KASB bank merger caused around Rs3.5 billion in losses to the national exchequer in addition to the already Rs6.6 billion reported in August 2017.

A recent audit conducted on the accounts of the State Bank of Pakistan by the AGP’s office for the audit year 2017-18 revealed this anomaly, according to tv anchor Kamran Khan.

This disclosure was made in a live telecast of “Dunya Kamran Khan Ke Saath” on March 29^th and said that a recently released AGP office report alleged State Bank of Pakistan hid losses to the tune of Rs3.5 billion and the amalgamation of these two banks was very dubious.

Not only is this a major headache for the PML-N government, but also for the central bank which has embroiled itself in a controversy.

Previously, the AGP office in its report for Audit Year 2016-17 had raised an audit objection about a loss of Rs435 million.

Also, during the merger of the aforementioned banks, the central bank did not consider the market value of KASB bank’s assets and its share price on the stock exchange, as per an audit objection raised by AGP office report.

Not only this, the AGP report claimed the merger was in contravention of Banking Companies Ordinance 1962 and thus termed this amalgamation irregular.

The auditors believed at the point of the merger, KASB market value was computed at Rs6.6 billion considering the number of shares stood at 1.9 billion at a share price of Rs3.47.

And the central bank divested KASB Bank at a token price of Rs1,000 to BankIslami, which translated to a net loss of Rs6.6 billion for 10,000 shareholders.

After the merger concluded, the central bank initially gave a loan of Rs5 billion to BankIslami at a nominal interest rate of 0.01 percent per annum for a period of ten years to

Also, Kamran Khan during the show told the loan had been given without approval of the central bank’s board of directors.

The National Accountability Bureau (NAB) is also conducting a probe into the BankIslami-KASB bank merger.

Interestingly, the merger of BankIslami-KASB bank had raised a lot of eyebrows over the way this transaction was handled by the SBP.

And a Chinese investment company had offered to inject $100 million in KASB.  Finally, on April 20, 2015, as promised, sponsors succeeded in getting one of the leading investment groups of China, Cybernaut, that has an investment fund of about $10 billion in China, to submit a formal offer to SBP governor committing to invest $100 million into KASB Bank, with $20 million to be invested before 13 May, $30 million by August, and remaining $50 million before end of year.

On April 21, 2015, with the offer of foreign investment having been received, the very next day of the offer having been given to SBP, sponsors of KASB Bank unconditionally withdrew their petition from IHC.

When Karachi’s stock market discovered about the Chinese offer, KASB Bank share rose to double its price. The market and the employees of KASB Bank were all happy and excited.

Cybernaut had issued a formal Letter of Intent for restricting KASB Bank and had said on April 20, 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.”

In an ironic twist, the KASB Bank was sent a letter dated April 27, 2015 titled “Draft Scheme of Amalgamation” from the SBP’s Banking Policy & Regulation Department. The letter stated to exercise “the power conferred on the State Bank of Pakistan” to amalgamate KASB Bank Limited into BankIslami Pakistan.