Bank Albaraka given undue extension to meet MCR deadline
State Bank of Pakistan (SBP) has apparently given an undue extension to Bank Albaraka Limited for meeting its deadline of paid-up capital requirement at Rs 10 billion by 2016-end, which was 2014 and 2015 by a majority of a mid-tier and small banks operating in Pakistan.
According to bank's financial report, it has been allowed to maintain a paid-up capital requirement of Rs 6 billion free of losses at all times and will have to meet the standard requirement of Rs 10 billion by end of 2016.
The bank planned to raise the capital foreign currency debt of $11 million as a short-term arrangement from its major sponsor which is Albaraka Islamic Bank BSC. The said subordinated debt is scheduled to be deposited to the central bank as non-remunerative deposit. This deposit will be not be withdrawn till the bank is achieved the requirement of full MCR till the set deadline. However, it needs to receive approval of the central bank in case it wants withdrawal of the deposit with SBP.
According to official source, the bank's deposit will be converted into paid-up capital if the withdrawal are not made by the bank till 2016-end.
Though, the central bank eased off its limit of MCR to the bank but it asked the bank to maintain a CAR limited of 16 percent till it maintains its paid-up capital requirement of Rs 10 billion. The CAR will be reduced afterwards the condition is met by bank. On the contrary, the bank fail to meet its CAR which is currently standing at less than 16 percent.
In 2015, the major sponsor Albaraka Islamic Bank (BSC) injected $8.5 million in the bank during 2015. This is addition to the injection of $11 million made in 2013. Despite of all out efforts by an Islamic Bank, it failed to meet mandatory requirement of central bank and the banking industry of Pakistan which has been met by majority of the bank due to strict compli- ance order. Many of the bank raised their right shares and attracted injection from foreign investors. One of them was KASB Bank also which could not guarantee to central bank but doing its efforts for the same. However, the central bank in a merger deal handed over operations and deposits of KASB Bank to Bank Isalmic. In the case of Bank Albaraka, the central bank was see relaxed surprisingly having merely a guarantee and a financial plan of the bank submitted to the banking regulator.