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Banks rush to increase capital

24 November, 2009

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KARACHI: Atlas Bank and Soneri Bank on Monday announced their separate plans to raise capital to meet the minimum paid-up capital requirement (MCR) set by the State Bank of Pakistan.

Loss-stricken Atlas Bank said its biggest shareholder would sell 58.31 per cent shares to Suroor Investment at Rs4.5 per share, a premium over Monday’s closing price of Rs3.39 a share.

Suroor, the Mauritius-based investment firm, has already acquired stake in Arif Habib Bank (AHB) and Mybank in similar deals earlier this year.

“We are looking at a target of close to 200 branches (when all banks are merged),” said Hussain Lawai, President AHB, who has wooed a group of foreign investors to acquire banks in the country.

“These acquisitions will help form a stronger entity to bear through difficult times.” Atlas Bank saw its capital being wiped off to just Rs2.6 billion in nine months to September 2009 during which period it suffered an after-tax loss of Rs1.4bn.

Economic slowdown, rising non-performing loans and loss on equity investments have cost dearly to banks. While drop in corporate earnings have made banks too cautious the consumer financing has almost stopped.

But the investment group seems really optimistic about the prospects of bank industry in the country as in its September 30 deal it bought Mybank’s 59.34pc stake at Rs8 a share, which was premium over then market price of Rs5.42 a share.

Since then Mybank’s share has tumbled to Rs3.57 in wake of devastating nine months to September 2009 loss of Rs1.167bn compared with a profit of Rs502m in same period last year.

The SBP has been pushing the idea of consolidation for smaller banks, which are facing difficulty in raising deposits and earnings as the economy slowed down.

Suroor’s acquisition in AHB for Rs9 per share was a far cry from AHB’s IPO of Rs21 per share early last year. AHB incurred a loss of Rs865m between Jan-Sep 2009 compared with a loss of Rs297m in same period of last year.

Meanwhile, Soneri Bank said its board of directors has declared issue of 20 right shares at 10 per share for every 100 shares held in a bid to meet MCR. Rights issue is an issue of shares offered at a special price by a company to its existing shareholders. Shares of Soneri Bank closed at Rs11.09 per share on Monday.

Safarali K Lakhani, CEO Soneri Bank, said there was no option but to issue right shares because of fragile economic situation. He said bank industry was going through a difficult patch but things will improve in coming years.

Soneri’s profit also plunged to just Rs116m in Jan-Sep 2009 from Rs716m it posed in same period of last year. Its capital stands around Rs5bn.

Suroor Investment Limited, owned by a Dubai’s sheikh who also has stakes in Dubai Islamic Bank, signed a share purchase agreement on June 30 to buy 60 percent shares of the AHB.

Seasoned banker Lawai, who was the first President of the privatised Muslim Commercial Bank (MCB) now MCB Bank, made a comeback to Pakistani banking industry last year after a long gap. He has been heading AHB as President and CEO since late 2008.

The financial downturn and its economic repercussions have turned out to be devastating for some other smaller banks, which have lost their equity to rising non-performing loans.

Earlier, Atlas Bank and Silk Bank have called off a planned merger, which was needed by both to raise their paid up-capital to meet SBP’s MCR of Rs5bn for 2008. Both banks have been allowed up till end of 2009, to meet the MCR.

After seeing that even the global banking system was in crisis, SBP revised the MCR for banks in Pakistan. Now banks are required to have MCR of Rs6bn by end 2009 and then they have to increase it by Rs1bn each year till 2013.


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