Name : sonhera sheikh

s.id: 6606
Assignment #1
Course: Strategic Financial Analysis
& Design
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
Answer:
the SBP launches a press release informing all KASB BANk restricted depositors that the
federal government had authorized the banks amalgamation scheme. The KASB BANK was
once blended and absorbed into the BANk of ISLAMIC PAKISTAN LIMITED. The
suspension on the previous KASB BANK LIMITED used to be then removed. The money
depositors have been cash depositors and are able to run their money owed kept by using the
respective branches of the former KASB BANK LIMITED . They are the bank depositors.
Following the merger, BANK ISLAMI was granted PKR 20 billion , consisting of a low charge
0.01 billion concessional mortgage of PKR 5 billion and transient liquidity of PKR15 billion.
As this facility used to benot competitively sold, the client discovered that this grant addressed
issues of accountability. BANK ISLAMI charged billions of rupees to the depositors on the first
day of its activities since it took over the KASB Branch. Bahria Town received the greatest
price of 2.5 billion PKR.

2. What methods were adopted by KASB Bank management to resolve the

shortage of capital?

Method to adopt:
In 2008, the KASB Group underwent big restructuring, involving the separation of
non-banking financialbusinesses from the bank. This led to the creation of KASB
Capital, a non-banking financialconglomerate. The Bank invests in KASB Capital's 68
million shares, which is the new entity's 27,5%shareholding. The financial situation for
the banks was once changed appreciably following the globaleconomic disaster in 2008
and quick action was once wanted for the Board of Directors andmanagement.

3. What plan was prepared by the Board of Directors (BOD) to deal with the
situation and what is your opinion of this plan?
Answer
The bank’s board of directors had also prepared a forward plan covering the period
from 2014 to 2018. However, achieving the results included the following risks:
1. Maintaining asset quality, retaining customers and meeting forecast net interest
Margins.
2. Raising additional capital as envisaged under the restructuring mentioned earlier
3. Failure in meeting the minimum regulatory capital (the bank was exposed to
action by the SBP as the regulator under the banking laws)
4. Assessing the appropriateness of using the going concern as the basis for
accounting was also relevant under the risks mentioned previously.

 In my opnion I personally believed this was wrong decision because previously

all the mergers failed for the management so it was too risky to take it again.
 Reshaping the bank through a demerger process by separating core banking assets
from the noncore businesses and assets. This decision was also undertaken by the
management which allowed the management to ensure that demerger produces
right results. The bank management found this decision good, because all the
merging banks were taking benefit of poor revenues. Hence, this is my personal
opinion about this decision. Carrying on with merger would have resulted in loss
of revenues.

4. Analyse the conditions prevailing during 2009 to 2014 that affected the small
bank such as KASB Bank.
Answer

The banking industry in Pakistan had grown at a compound annual growth rate
(CAGR) of 13.2 per cent over the period 2009–2014, while deposits of the industry
had posted a CAGR of 14 per cent and the conditions which were prevailing for the
banks during 2009-2014 were not good and mostly of them were ineffective. It was
observed that the banking industry in Pakistan had grown at a compound annual
growth rate (CAGR) of 13.2 per cent over the period 2009–2014, while deposits of
the industry had posted a CAGR of 14 per cent. The banks in general, had adopted a
conservative lending strategy as a result of high problem advances during 2008–2010.
The banks invested in high returning government securities which ensured that
profitability remained strong without exposure to credit risks. For investors, a return
on equity on bank stock of 16.2 per cent was very attractive. The banking industry
was divided into the various market segments.

KASB Bank was among the small-sized banks and, along with its peers, was having
difficulty in meeting the enhanced capital requirements of the SBP. As Basel III3 was
being implemented, the pressure on asset quality and a narrowing of spreads made the
operating environment for banks having a weak financial risk profile more
challenging.