RIPHAH INTERNATIONAL

UNIVERSITY
Crescent Standard Investment Bank Limited
(Case Study)

Submitted to:
Sir Haroon

Submitted by:
MUHAMMAD UMER AMIN
CMS # 21966
MBAE
Question # 1 What are the highlights & key points of the Case?
Answer: Crescent Standard Investment Bank Limited-(CSIBL) was the largest investment
bank listed on all stock exchanges in Pakistan, so when he told a huge loss of Rs2.1 billion ($ 35.5
million) exercise and December 31, 2005, the market was taken by surprise. There had been
rumors that all was not well and that the regulator of investment banking, the Securities and
Exchange Commission of Pakistan (SECP) had sent a team to investigate the affairs of the bank.
As major shareholders are natural or legal business group called Group Crescent known people,
there was a huge interest in the business CSIBL by financial and political circles. The case
describes the different types of entities that merged to form the CSIBL, mainly to protect
stakeholders by creating an entity with a large cap. The bank had reported in their annual reports
that all internal control mechanisms for good governance provided by the SECP were in place and
all (internal and external) auditors said they were satisfactory. However, when subjected to an
investigation, it was revealed that the internal management was involved in a variety of acts of
misrepresentation and concealment. The case relates to the weakness of the structure of the
system of governance in Pakistan. The fact is that no amount of internal and external controls
may adopt internal management conspire to perpetuate a fraud.

Question # 2 What are the key controls that govern the supervision of a non-banking finance
company listed on PSX?
Answer:
1. The NBFCs shall establish separate risk management function for the purpose of
consumer financing, which will be suitably staffed by personnel having sufficient expertise and
experience in the field of consumer finance and business.
2. These companies shall prepare comprehensive consumer credit policy duly approved by
their board of directors, which will beside other things, cover loan administration, including
documentation, disbursement and appropriate monitoring mechanism.
3. Policy shall explicitly specify the functions, responsibilities and various staff positions
power authority relating to approval of consumer financing facility.
4. For every type of consumer finance activity, the NBFCs shall develop a specific
programme. The programme shall include the objective quantitative parameters for the eligibility
of borrower and determining the maximum permissible limit per borrower.
5. The NBFCs shall put in place an efficient computer based management information
system for the purpose of consumer fiancé. Which should be able to effectively cater to the needs
of consumer financing portfolio and should be flexible enough to generate necessary information
reports used by the management for effective monitoring a NBFCs exposure in the segment.
6. Reports interrelating delinquencies with various type of customers will enable the
management to take important policy decisions and make appropriate modifications in the
lending programme.

Question #3 What were the reasons for the fraud and how could this have been pretended?
Answer: Frauds & Reasons of Failure:
In the market competition is very high they did not change policy and they focus only mergers
and acquisition with other companies.
They merge Altowfeek Company but this company has paid up capital 310 million and loses 275
million.
Chief executive of CSIBL receives notice from SECP the bank was maintaining parallel books of
accounts.
During the inspection in September, Inspector found in30 June 2005 showed on asset based on
9.5529 billion.
The inspector found that the bank had involved into violation of various accounts which is against
the rule companies’ ordinance 1984 and non-banking financial ordinance.
The parallel book of account showed a placement amount 1.817 billion made by 20.896 million
share of PICIF-DFI.
It also violation of prudential regulation issued by the SECP under 230 section. The main purpose
of prudential regulation provides new way to investment in leasing companies and they provide
operations company guideline.
In December 2005, they did not circulate audit accounts even till august 2006.

KET analyst felt that these frauds occur due to internal management of the CSIBL. KET wanted
analyses of fraud CSIBL that how fraud is occur in CSIBL.

The chairman and director of CSIBL report in press that he was not informed. Commission had
also receive latter from Manzur ul Haq and chairman the sale of the asset without approval of
board.

Question # 4 Evaluate the statements made by the chairman and the director that were
avoiding responsibility? what is the role of the board‘s a whole and the chairman in
particular?
Answer: Recent events like the unearthing of the J O vohra transaction and the sale of
assets of the bank without the boards prior approval or knowledge bring me to the sad conclusion
that the board and its resolution s have no sanctity and the board at best is irrelevant at the bank.

Another Board Director IFHTIKHAR SOOMRO had noted that:

After the commencement of inspection by SECP, the board, particularly independent directors,
advised several measures. However, we regret to note that the resolutions of the board were
consistently bypassed and the board was rendered totally ineffective to exercise control over the
affairs of the bank. The ineffectiveness of the board member is largely attributable to the
sponsors and their control over executive director

Question # 5 What was the effect of the merger on the organizations culture?

Answer: The objective of crescent bank was to achieve growth by merge and acquisition
with NBFC’s. First crescent bank start acquire in 1999 and then merged with investment bank.

It is very difficult to operate alone in market then they use policy of merger and acquisition.in
august 2002, there are two listed share holder altowfeek investment bank and first crescent
Modarba and new name gave first standard investment bank. Crescent group held 35% share
and able to place three nominee. Altowfeek Company have paid up capital 345 million.

First leasing corporation limited had informed KSE that three nominees of Pak Libya Company
replace by crescent group. The crescent group purchase strategic equity interest of two leasing
companies first leasing and paramount leasing company.

When the paramount merge with first leasing was completed the crescent company held by 52
shares merges of equity. Paid up capital of first leasing is 272 million and paramount paid up
capital is 250 million.

Recommendations:
CSIBL bank shows growth in starting but they do not merge more companies. According to market
situation they should be change strategy because environment is very difficult. Books of accounts
show true picture. They also give power subsidiary companies. Higher management keep on eye
and check and balance daily basis. They did not merge with those companies’ deficit or loss. Make
strict policies about which shows wrong accounts and implement strictly to prevent violate the
policies. Pakistan has made major steps in improving the governance of its corporations in
general and that of banks in particular. However, more efforts need to be made in terms of
improving levels of compliance with the Code. Given its crucial role in promoting and sustaining
economic development, Pakistan’s banking industry needs to be aware of its role as a leader in
high corporate governance standards.