KARACHI, May 13: Crescent Standard Investment Bank Limited (CSIBL) has been found involved in serious financial crimes, including maintaining six fake accounts, hiding Rs6 billion liabilities and making transaction with a dubious offshore company.

A detailed report of auditors of the company and charges levelled by the Security Exchange Commission of Pakistan revealed that Crescent Bank was involved in hiding its liabilities and a number of transactions. However, the bank was preparing a detail reply to the allegations and at the same time trying to manage a liquidity up to Rs2bn from National Bank.

The NBP president, however, denied that his bank had made any commitment to help CSIBL. “We will not finance CSIBL unless it is cleared from the SECP and unless it emerged as a viable project for financing,” NBP President Ali Raza told Dawn.

“If the SECP clears Crescent Bank and it becomes a viable project, NBP may opt for syndicated loan that will be fully secured,” said Mr Raza, adding that the SBP would also be informed in this regard.

The SECP reported that CSIBL was maintaining six accounts in the name of Jhang Electric Supply Corporation, depicting an aggregate activity of Rs5.918 billion. “These accounts were not reported in the printed general ledger of Lahore branch of the bank,” the SECP report adds.

The SECP discovered that out of Rs1.941 billion recorded in the parallel books as ‘placements’, an amount of Rs1.817 billion was in fact an investment made by the bank in 20.896 million shares of PICIC (DFI).

This investment along with investment in shares of Rs1.323 billion, Musharaka ventures of Rs1.344 billion and investment in PIBs of Rs0.549 billion were not reported in the published statements of the bank.

“Therefore, total assets of Rs5.252 billion were hidden in parallel books,” said the SECP.

Auditor Ferguson and Company also endorsed the discoveries about financial mismanagement of the bank. The executive summery prepared for the bank said that the assets and liabilities of Rs6 billion were off-balance sheet and had not been reflected in the published financial statements of the bank. Liabilities were mainly borrowed from financial institutions.

The SECP said the bank paid Rs324.62 million to Dossalani Securities Limited (DSL) and an amount of Rs67.64m was recovered from DSL. The outstanding balance from DSL should have been Rs256.98 million whereas it was shown as Rs299 million.

“The scrutiny showed that the actual amount of Rs42.104 million was made to M. Idrees H. Adam, member of the Karachi and Islamabad stock exchanges, against the purchase of two million shares of Crescent Leasing and the amount was never paid or disbursed to DSL,” said the SECP report, adding that the account of DSL was being used to make payments to other parties.

The SECP said Crescent Bank had entered into Musharaka transactions with Maghreb Developers Corporation (MDCL) of Rs1.540 billion for investment in real estate. The bank does not have a housing finance license, thus violating the banking regulations.

The executive summary showed that as on October 31, 2005, total outstanding balance due against MDCL was Rs2.676 billion. Of the balance, overdue mark-up receivable in this account amounted to Rs718 million which has been credited to income. Under the NBFC regulations, such income should be reversed from income and taken to suspense.

The Crescent participated in 50 per cent equity of Creek Marina by purchasing 442,510 shares from Meinhardt Singapore for Rs255 million, while the auditors were informed that Rs335 million was paid to one Mr Ahmed Shah for arranging the deal. Payments were made by the company from the funds received from various group companies. An amount of Rs540 million was received by the company from Shakarganj Mills, Crescent Steel and Allied Products, Crescent Leasing Corporation and Waivera Inc. Panama, while Rs50 million was paid by the company.

The SECP reports that on an aggregate basis, the bank’s exposure to these group companies equals to Rs3.703 billion — 240 per cent of the bank’s equity of Rs1.537bn — which is a violation against the NBFI regulations.

During the last week meeting of stakeholders of Crescent Bank, the participants raised queries about the reports of consultants and M/S A. Ferguson and the unlawful acts as mentioned in the reports. The participants were requested by the group not to press for payment of inter-bank treasury transactions. The amount of inter-bank treasury was mentioned as Rs1.4 billion. The participants were not provided with the auditors reports.

CSIBL issued a press release on April 26 that said that it was looking for a cash of Rs2 billion to protect the bank.

“The sponsors have maintained that the assets of CSIBL are sufficient to meet all its liabilities. However, to provide additional comfort to the stakeholders, Rs2bn in liquidity is being arranged,” said the press release.

“A consolidation plan, which has been under active consideration, has now been accelerated to provide capital strength. Under the plan, all non-banking financial institutions controlled by the sponsors are to be combined into the entity, which will have a capitalisation of Rs2.5 billion to Rs3 billion,” said the release.