The KASB Bank Limited moratorium dilemma

1st December 2014

 
 

As KASB Bank limps forward under the State Bank moratorium, the banking community is riddled with speculation over the eventual outcome of the bank and the scope of the financial industry as a whole. The primary concern is raised by depositors within smaller banks – the withdrawal restriction on KASB Bank deposits has led several banking consumers to shift their savings to larger banking institutions. Clarity has yet to be gained as to why SBP suspended the activities of KASB Bank, and which other banking institutions are in the limelight for such a moratorium.

KASB Bank had been warned several times in the past to meet the minimum capital requirement set for banking institutions in Pakistan. However, they were not the only bank falling short of SBP requirements. Two other banking bodies had even offered to merge with KASB Bank to relieve it of its capital problems. Yet, the government chose to suspend their operations; speculations of another banking tycoon (backed by the ruling political party) interested in KASB are rife in the industry. The greatest toll of this turf war has fallen on the consumers. Unable to withdraw their money and in fear of losing their deposits if the bank closes down, consumers are anxiously waiting for guidance from the central bank. To date, there has been none!

The KASB moratorium dilemma opens a larger Pandora’s Box – how the government and the central bank have disregarded consumer protection for the personal gains of those in power. Since the 1990’s the banking sector has flourished primarily due to exorbitant spreads on their deposits – whilst doling out negligible returns to their depositor base. In the recent years, the increase in government borrowing from the commercial banking sector has created another avenue for banks to earn risk-free income. The biggest losers have been the private and consumer sector – minimal returns on their holdings, and negligible financing facilities. The KASB dilemma has reinforced the notion that consumer interests score low priority when it comes to central bank and its guidelines for Pakistan’s economy. Depositors are always at risk for losing their money to banks and their turf wars with each other. It takes a simple notice from SBP to restrict the transactional abilities of domestic consumers in Pakistan.

How can SBP improve the KASB situation? A detailed explanation of the moratorium followed by an action plan is necessary for the consumers to regain their trust in the central bank and smaller-sized banking institutions. The negative speculation in the economy needs to be removed by SBP, especially for KASB and smaller bank customers. The banking sector should be a fair playing field – one that is not riddled by political agendas and display of muscle by banking tycoons and government cronies.

 

 
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