An inquiry report of National Accountability Bureau (NAB) on amalgamation of KASB Bank with Bank Islami held the officials of Bank Islami, State Bank of Pakistan and AF Ferguson responsible for the multi billion rupees scam and concluded the inquiry by recommending that a further investigation was needed to establish the malafide merger.
According to NAB’s inquiry report findings, “Officers of State Bank of Pakistan (SBP), officials of Bank Islami and AF Ferguson—who did due diligence of KASB Bank—committed offence of misuse of authority as envisaged in section 9(a)(iv) of NAO 1999.”
“The SBP official prima facie misused their authority by refusing foreign investment of $100 million in KASB Bank and favored Bank Islami. They (SBP officials) also awarded Bank Islami a concessional loan of Rs 20 billion to bear the burden of KASB Bank which Bank Islami was not capable of,” said the report.
National Accountability Bureau (NAB) conducted an inquiry for the amalgamation of KASB Bank with Bank Islami on token price of Rs 1000 only.
Officials Involved
The officials of SBP, Bank Islami and AF Ferguson held responsible for this merger include Ex Governor SBP Asharaf Wathra, Syed Irfan Ali Executive Director SBP, Shoukat Zaman Director SBP, Arshad Mehmood officer of Audit SBP, Nadeem Ahmed Jami officer of Audit SBP, Muhammad Saleem officer of OSED SBP, Shahid Ashraf officer of Audit SBP, Representative of SBP Legal Dept, Asad Nazir partner AF Ferguson, Asim Salim, partner, A F Fergusons, the report added.
It further highlighted the role of the officials of Bank Islami and other groups involved in the KASB Bank-Bank Islami merger including Chairman Bank Islami, Ali Hussain, Board member of SBP, Fawad Anwer, another director of Bank Islami and also a director of Al Karam Group of Companies and M/s Ismail Industries along with his family members and associates.
SBP & KASB
SBP in its statement reaffirmed that all of its actions in the resolution and amalgamation of defunct KASB Bank were in accordance with the law and aimed to safeguard the interests of depositors and aimed to ensure safety and soundness of the banking system of the country.
None of the SBP officials misused authority nor were they involved in any kind of corrupt practices. All the actions taken were permissible under the law and were duly approved by the Ministry of Finance and SBP’s Board of Directors.
The KASB Bank was facing capital shortfall in terms of both Minimum Capital Requirement (MCR) and Capital Adequacy Ratio (CAR) since 2009 and its directors and sponsors of the Bank were asked by SBP to inject fresh capital or find an investor or buyer for the bank.
Samba Bank & KASB
Muzaffar Bukhari of KASB Bank told the NAB officials that Shoukat Zaman, Ms Lubna Farooq were amongst the senior officials of the SBP who were in touch with him in this regard.
He also told the NAB that he held a meeting with Dr Shujaat Nadim, Chairman SAMBA Bank, along with SAMBA Bank President, Shahid Sattar in Dubai in August 2014 with a follow up in Karachi regarding the sale of the bank.
Mr Bukhari further told NAB that the discussions were moving forward well when SAMBA Bank backed out and reportedly told that SBP officials, without disclosing the names, asked him to stay away from KASB Bank.
MCB & KASB
In October 2014, the report said that M/s Next Capital was hired with an investment banking mandate to sell the bank to MCB. KASB Bank also had deferred tax assets of Rs 6 billion. On the informal advice of Asharf Wathra, the Governor SBP back then, Nasir Ali Bukhari, sponsor of KASB Bank and Mehmood Mandviwala were hired as legal advisers in this regard.
On Nov 11, 2014, an MoU between KASB Bank and MCB was signed for performing due diligence of the KASB Bank but SBP on Nov 14, 2014 imposed moratorium under section 47 of Banking Companies Ordinance 1962 and after the moratorium, MCB backed out and the transaction could not be executed.
KASB President Alleges SBP Forced Unjustified Due Diligence
After the refusal, NAB reported that Bilal Mustafa, president of KASB on Dec 15, 2014, was asked by SBP officials to forcefully sign a tripartite agreement at midnight with M/s A F Fergusons, Chartered Accountants and SBP for conducting due diligence at a total fee of Rs 20.5 million whereas the market fee for this task was normally Rs 5 million.
As per the statement of Bilal Mustafa, he was reluctant to sign the agreement with KASB as he was neither authorized nor had the approval from BoDs for this task. Also, the selection of M/s Fergusons by SBP was done without any advertisement and clause 4 was inserted in the agreement, which stated the report of due diligence conducted by AFF will not be shared with anyone except SBP.
The board of KASB raised serious observations on this which were conveyed to the Governor SBP on Jan 7, 2015 and the meeting was also attended by two observers of SBP namely Zahra Mavani and Majid Hussain. Company secretary of KASB Bank back then, Hameedullah, during a meeting with some of the directors of KASB also raised observations on signing of tripartite agreement, selection of AFF, exorbitant fee being paid to AFF, non-sharing of deliverables of agreement with KASB and valuation parameters of due diligence.
As per documents collected during inquiry, NAB said that the act of changing minutes and removing observations of Board by SBP was illegal and showed ill intent of SBP and this act was strongly agitated by directors of KASB in their correspondence with each other on Dec 30, 2014.
Chinese Investors
The sponsors of KASB bank managed to bring in a Chinese investor – Cybernaut Group – to invest $ 100 million in the KASB Bank. KASB Bank agreed with Cybernaut for an initial investment of $20 million which valued around 35 million shares of the bank.
SBP rejected Cybernaut proposal of investment in KASB Bank just one day before all documentation and pre-requisites were fulfilled by Cybernaut.
After one week of rejection of Chinese investment of $100 million, SBP handed over a draft amalgamation plan to KASB’s to the former president of the bank at a token price of Rs 1000 only against 1.9 billion shares despite the fact that KASB Bank shares at KSE were Rs 3 per share back then.
After the merger, Bank Islami was granted Rs 5 billion Financial Assistance (Grant) by SBP to cover the losses of KASB bank and Rs 15 billion as concessional loan at low interest rate of 0.01% per annum, concluded the report.
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