ASSIGNEMENT NO 2

KASB BANK

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.

Answer:
Moratorium placed on KASB bank by state bank of Pakistan because the bank was not
able to meet the requirements and minimum capital requirement from state bank of
Pakistan and also because banks was not able to recover the loan that was granted to his
customers. And they were also make enough returns on remains products.

2. What methods were adopted by KASB Bank management to resolve the shortage of
capital?

Answer:
To deal with the shortage of capital they tried to deal with the shortage by seeking for the
foreign investment but due to some reasons SBP did not allowed it, but there were further
steps that were taken by SBP they asked other bank steps to do due diligence. But no one
was interested they asked other banks for offers in which Sindh Bank, Banks Islami any
some other banks participated but tey were also not interested but bank islami was also
not in condition in SBP asked them to do merger and give them loan.

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 board of directors tried to sale their share took loan,. Also they took decisions to do
submerge they negotiated with clients, they tried to negotiate with the lenders so that they
could pay. They cut their new hiring. They started to open business branches.

4. Analyze 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 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.
Also KASB Bank had reported losses continuously over the preceding five years; its
losses for the calendar year ending 31 December 2013 were PKR1,625 million and a very
high percentage of its loans and investments portfolio were nonperforming. As a result,
the bank had been facing severe capital shortages in terms of both minimum capital.

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?

Answer.
State bank of Pakistan polices are for the benefit of the people and also for the banks they
try to keep both of the parties safe so that people do trust banks also they are able to trust
the banking system of Pakistan these polices are also for the good of banks as they do
know how much business they are doing and also what time is alarming, so they
customer and banks booth could trust each other. The decision do the amalgamation of
these two banks were right as KASB was totally working in loss and also not able to
compete with the market Bank Islami was also facing problem but was in better condition
also SBP give them loan and temporary relief to cope up with the situation other wise
merger could have been failed.