IT has been two months since the State Bank of Pakistan moved to place a moratorium on KASB Bank, telling depositors that withdrawals beyond Rs300,000 would not be allowed for six months at least.

The step created a fair amount of unease amongst other banks, but it was depositors who worried the most. Fortunately the episode did not have any spillover effects on the rest of the banking system and panicked withdrawals did not occur.

Also read: KASB Bank to remain open: SBP

In part this was because of a reassuring message put out by the SBP that the situation is temporary and withdrawals would be permitted soon. Given the Rs300,000 withdrawal limit, most retail depositors felt assured that the situation would normalise before they had exhausted this limit.

It has now been two months and the concern amongst retail depositors is growing. Businesses that maintained their accounts at KASB are now reduced to borrow to bridge the non-availability of those funds.

Now that due diligence has begun for eventual sale of KASB, depositors further fear that they will be made to wait for the entire length of time it takes to sell the bank and merge its operations with those of the new buyer before they will be allowed to withdraw their funds. That means the wait could be a lot longer than what they had been prepared for.

The State Bank needs to address the growing anxiety amongst the depositors that their funds will be safe and available for withdrawal within, if not sooner, than the stipulated six months.

Safeguarding the interests of the large investors in KASB, as well as ensuring that it fetches as decent a price as possible given the circumstances, cannot be larger priorities than safeguarding the trust the depositors placed in the institution.

The reputation of the entire banking industry in Pakistan could be adversely impacted if depositors’ anxiety is not addressed. This would be a grave consequence, especially in light of the fact that there is no deposit insurance in Pakistan.

Published in Dawn, January 19th, 2015

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