KASB - Case Solve Sidra 62615

Student Name: SIDRA MUSTAFA ID: 62615
Course : SFAD Faculty: DR. M. ARSALAN HASHMI
Assignment no1
Topic :KASB Bank Limited: Capital Shortage
1. Why was the moratorium placed on the KASB Bank by the State Bank of Pakistan?
Determine the Tier I capital shortage for the years 2012 and 2013 assuming there was
no reduction required as per Exhibit 5.
KASB was founded by Khadim Ali Shah Bukhari .it was public limited company which founded
in 1994 .KASB bank was a small bank and it faces many financial crises .Bank was also unable
to meet the Minimum Capital requirement (MCR ) and Capital adequacy ratio .as compare to
other banks KASB facing losses continually over the last 5 years
The KASB bank has limited deposit which was PKR 57 billion as bank has poor deposits also
general public assured that KASB was small bank and has less than 0.7 % of the banking sector
deposit as whole, therefore SBP decided or want to safe these deposits SBP impose certain
restrictions. The bank had restricted to paying certain debts moreover SBP allowed depositors up
to PKR 300, 0001 to operate their accounts normally
KASB bank also face difficulty to meet the requirement of Tier 1, according to 2014 report
issued BY SBP the MCR were PKR 0.958 billion where CAR of negative amount 4.63% as SBP
minimum requirement is PKR 10 billion and 10% respectively .unfortunately KASB bank was
unable could not meet the Tier 1 requirement .many consequences arises due to poor credit
decision if we discuss loan and advances bank face difficulty to or remain fail to recover amount.
2. What methods were adopted by KASB Bank management to resolve the shortage of
capital?
Due poor credit decision and as amount of Nonperforming loan increase that affect company
seriously also this bank face crises as 2009 was the year of crises as due to tight liquidity
condition distress corporate performance .in year 2010 to 2011 bank did not generate enough
earning and the net interest margin became negative because of all these crises KASB bank was
unable to meet SBP minimum capital requirement
Following measures taken to improve shortage of capital
KASB bank try to start merger with many local and international firm some of them merge but
some merger did not happen due to SBP conditions .KASB bank merge with IHFL on October
2006 The merger added a healthy amount of PKR522 million in advances to the existing bank
portfolio.
In year 2008 board of director decided to amalgamate with KCL and NLCL. The bank held 27.5
per cent shares of KCL, and KCL held 78.84 per cent of the shares in NLCL.
While on 2010 KASB was planning to merge with Asia International Financial Limited (AIFL)
but in 2014 SBP got information that (AIFL) changing the structure without SBP approval due to
this contravention SBP rejected this merger
KASB bank not only raise fund but different merger but bank also issued right shares The
subscription of the rights shares increased the paid-up capital from PKR9,509 to PKR12,509
million (net of discount) as of 31 December 2011
3. What plan was prepared by the Board of Directors (BOD) to deal with the situation and
what is your opinion of this plan?
KASB Bank director try to fix issue not only financial but related to operational concern.
Director decided for merger or amalgamation and also they raise fund through issuance of right
share beside this management diversified one of the initiative 20 branches converted into
business branches .Bank also focus over service quality and human resource initiative taken like
Monitoring of service quality, Focusing on training and development, Recognizing and
rewarding people, Improving corporate communication, Reengineering processes to enhance
efficiency.
Management also aware about technology they also upgrade their system by using Misys
packaged solution (a well-known global banking software).Bank director also approve future
 Reshaping the bank through a demerger process by separating core banking assets from
the noncore businesses and assets
 Re-capitalizing the demerged core by either direct equity injection or amalgamation with
another bank
According to my opinion board of director need to focus on deposit scheme means through large
account opening they need to approach big industry and need to get large account besides this
need to focus customer satisfaction and made close relation with their customer
4. Analyze the conditions prevailing during 2009 to 2014 that affected the small bank such
as KASB Bank.
If we look banking industry in Pakistan during 2009 to 2014, had grown at a compound annual
growth rate (CAGR) of 13.2 per cent over the period 2009–2014
KASB Bank was one of the small –sized banks which was facing difficulty to meet the capital
requirement, over the period of time bank face poor credit decisions in building its loans bank
NPL were increase .The performance of bank was declining 2009 to 2013, During the year of
2010–2011, the bank’s investments did not generate enough earnings and the net interest margin
became negative the amount of loan loss provisions and impairments in 2009 of PKR3,328
million and PKR1,509 million in 2010, caused the bank to report huge losses of PKR4.3 billion
in 2009 and PKR2.7 billion in 2010.
In the year 2011, because of high cost of funds, the net interest margin was again negative at
PKR485 million which, together with administrative expenses of PKR2.8 billion, resulted in the
bank reporting a loss of PKR2.5 billion. The bank also posted losses in dealings in foreign
exchange due to a weak currency. The administrative expenses increased to a high of PKR3.1
billion in 2012 and the bank’s loss for the year was PKR806 million. The net interest margin in
2013 was insufficient to cover the loan loss provision of PKR1.18 billion and the administrative
expenses of PKR2.9 billion, causing a loss of PKR1.6 billion in 2013. By the end of 2013, the
accumulated loss was a massive amount of PKR12, 500 million.
5. Do you think the State Bank of Pakistan acted impartially in resolving the KASB Bank
situation and what is your opinion of the amalgamation of the bank into Bank Islami?
As in this case study we identify poor condition of bank and after many changes and strategies
no fruitful result came therefore State bank acted and through amalgamation process try to
resolve bank current decline position.SBP try to approach first big banks but the banks did not
show interest SBP need to give some bail or any other benefits to these big banks so they
thought about it but decision of amalgamation with Bank Islami is much reasonable as situation
of bank islami is not good so by amalgamation SBP try to overcome or minimize the problem of
both banks also SBP give grant to Bank Islami , SBP may give grant before amalgamation to
KASB bank , SBP may try to amalgamate with big bank and SBP can give them some benefits
so they show interest .it is difficult to retain any bank whose declining day by day .SBP may take
this decision most appropriate as SBP also have limited option

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Student Name: SIDRA MUSTAFA ID: 62615

Course : SFAD Faculty: DR. M. ARSALAN HASHMI

Topic :KASB Bank Limited: Capital Shortage

Following measures taken to improve shortage of capital

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