Bank Islami and KASB Bank Merger Cost Rs. 3.5 Billion Loss to Pakistan: AGP Report

Auditor General of Pakistan (AGP) office has once again raised concerns about the shady deal between Bank Islami and KASB Bank. AGP raised objections in the audit report for the fiscal year 2017-18. The case came into the limelight some time ago when top bankers sold the KASB bank shares for just Rs 1,000.

The AGP office alleged that State Bank of Pakistan handed undue favors to Bank Islami during the merger. The deal between the now-defunct bank and Bank Islami resulted in a Rs 3.5 billion loss to the national treasury.

AGP and the Deal

AGP released the audit report in which it highlighted the disturbing irregularities in the deal. KASB Bank was bound to cease its operations as it no longer met the statutory paid-up capital requirement of Rs. 10 billion. Several banks, including the Muslim Commerical Bank showed interest in buying KASB Bank.

A Memorandum of Understanding was signed between MCB and KASB as well. However, SBP interfered and imposed a moratorium after which MCB could no longer complete the deal.


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Apart from that, the sponsors of KASB Bank also managed to bring in around $100 million investment from a Chinese investor Cybernaut Investment. Cybernaut said in 2015, after announcing the investment;

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 was to fund $20 million before 13th May 2015, $30 million before August and $50 million before December.

However, SBP interfered yet again declining to give permission to Cybernaut for opening an escrow account.

Questionable Deal

KASB Bank was then sold for an unbelievably low price of Rs 1,000 to Bank Islami. At the time, the report says that KASB Bank had Rs 57 billion worth of assets and deposits. The market value of the bank was Rs 6.6 billion when it was sold for Rs 1,000.

However, SBP didn’t consider the market value before approving the amalgamation between KASB Bank and Bank Islami. The deal caused heavy losses to the KASB Bank’s shareholders as well as the national exchequer.

After the deal, the State Bank granted Rs 5 billion to Bank Islami at a low 0.01% interest rate per annum for ten years. The purpose of this grant was to cover the losses of the KASB Bank. The amount resulted in a loss of over Rs 3 billion to the treasury. The report says;

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.

Apart from that, the Central Bank released a grant of Rs 15 billion for Bank Islami. The amount has been returned however, it resulted in a Rs 435 million loss as well. The report adds that the amalgamation procedure that SBP followed was against the Banking Companies Ordinance 1962.

The National Accountability Bureau (NAB) is also probing the deal between KASB Bank and Bank Islami.


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