Initially, some four banks including JS Bank, Askari Bank, BankIslami and Sindh Bank were intending to acquire KASB Bank operations and approached SBP to get NoC for due diligence of KASB for proposed acquisition. However, now SBP has selected BankIslami for amalgamation of KASB Bank.
Under Section 47 of the Banking Companies Ordinance, SBP has prepared a draft scheme for amalgamation of KASB Bank with and into BankIslami Pakistan Limited and accordingly this scheme has been sent to BankIslami for suggestion/objection, if any. Since the break-up value as determined by the independent valuator is negative, BankIslami has been asked to pay a token compensation/consideration of Rs 1,000 for the entire shareholding to the shareholders of the KASB Bank in proportion to their shareholding. Source said the BankIslami board of directors will consider the scheme in its meeting to be held today (Wednesday).
According to the scheme, draft of which is available with Business Recorder, after the amalgamation from the effective date, all assets and liabilities of KASB Bank shall stand transferred to and vest in the transferee bank, which shall take all necessary and expedient steps to properly and efficiently manage the affairs of KASB Bank.
The State Bank shall place this scheme before the federal government for its sanction. In the event the federal government sanctions this scheme, it shall come into force on such date as the federal government may specify in this behalf in terms of sub-section 10 of Section 47 of the Ordinance (the effective date).
The existing KASB Bank board shall stand dissolved and the banking license shall stand cancelled with effect from the effective date. Further, all the branches shall become branches of the transferee bank and the branch licenses issued to KASB Bank shall be deemed to have been issued to the transferee bank, which may shift/merge/close such branches of KASB Bank as deemed necessary in terms of the branch licensing policy of the State Bank.
Extinguishment of rights and interests in the shares of KASB Bank, the scheme said that in view of the negative value of shares of the KASB Bank, as determined by "the independent valuator," the shares and all rights and interest therein stand extinguished as the shares are not represented by capital and accordingly stand cancelled.
Since the break-up value as determined by the independent valuator is negative, the transferee bank shall pay a token compensation/consideration of Rs 1,000 for the entire shareholding to the shareholders of KASB Bank in proportion to their shareholding.
According to the scheme, under entitlement of allotment of shares or compensation, every person who, on the effective date; 'stands registered as the holder of any share of KASB Bank shall be entitled to receive compensation per share, or shares from the transferee bank of an amount to be determined, unless the transferee bank is satisfied that the title of the registered holder of any share is defective.
The State Bank is satisfied that KASB Bank be amalgamated with and into the transferee bank keeping in view the public interest, the interest of the depositors of KASB Bank, to secure proper management of the Bank, and in the interest of the banking system of the country.
On November 14, 2014, in order to protect the interest of depositors and other stakeholders and due to financial health and other circumstances of KASB Bank Limited, it was placed under moratorium for a period of six months. Moreover, the federal government also directed the State Bank to consider reconstruction or amalgamation of the bank within six months. The amalgamation process was delayed as in February this year the sponsors of KASB Bank filed a petition in the Islamabad High Court (IHC) praying the court to direct the SBP to involve the owners of the bank in sell-off negotiations and accordingly the court granted a stay against the proposed sale of KASB Bank.
Sponsors of KASB Bank, last week have unconditionally withdrawn the writ petition filed against the proposed sale of the bank, which market sources termed a deal with SBP aimed to resolve the issues out of court. Sources said after the withdrawal of the petition by the sponsors of the banks, the SBP has initiated amalgamation process of KASB Bank as six months moratorium is being completed next month and before that the regulator is required to complete its restructuring in order to protect the investors' interest.
KASB Bank has been facing severe capital shortfall in terms of both Minimum Capital Requirement ("MCR") and Capital Adequacy Ratio ("CAR") since 2009. As of September 30, 2014 the Bank's MCR (free of losses) was in the amount of Rs 0.958 billion with a CAR of negative 4.63 percent against the required levels of Rs 10 billion and 10 percent, respectively.
BankIslami is the country's second largest Islamic Bank with 213 branches in over 80 cities. Presently, it has deposits over Rs 95 billion and recently, shareholders of BankIslami have injected Rs 4.2 billion to comply with SBP's MCR condition.