MCB’s board approves NIB merger in currency swap accord

KARACHI: MCB Bank (MCB), Pakistan’s third largest private bank, on Wednesday approved its merger with NIB Bank through an acquisition of the latter’s majority stake under a share swap arrangement from Singapore-based Temasek.

“The committee of the board of directors of MCB, at its meeting, approved and recommended the scheme of amalgamation of NIB with and into MCB by way of merger of NIB with and into MCB through a share swap arrangement,” the MCB said in a notice issued to the Pakistan Stock Exchange.   

“The committee has also approved the swap ratio of one new ordinary share of MCB for every 140.043 shares of NIB for the scheme of amalgamation.” The merger is subject to approvals from the shareholders, State Bank of Pakistan (SBP) and Competition Commission of Pakistan.

MCB needs to issue its 73.6 million ordinary shares to the NIB’s shareholders under an agreement. Topline Research, in a report, said a share value of NIB comes at Rs1.6, which is at a discount to book value of Rs1.8/share, based on the prevailing market price of MCB and swap ratio of 140. Currently, NIB is trading at Rs1.9/share.

Analysts said the new entity, after the merger, will have a book value of around Rs164 billion. “Presently, the book value of MCB stands at Rs144 billion, while the market capitalisation of NIB is Rs20 billion,” said Taha Khan, director research at Alfalah Securities.        Earlier, the market estimated the deal price at 120-131 shares of NIB for each share of MCB Bank.

An ex-governor of the SBP said there is a need of consolidation in small bank and mid-tier banks over the next four five years as banking sector needs scale, capital and network distribution under Basel III . “If the low interest rates last for another two years then profitability of banks will immensely be affected,” he said. “Small- and mid-tier banks will have to form their growth strategy either through organic modes or by Islamic, digital, agriculture and SME (small and medium enterprise) banking boost in order to survive.”

Smaller banks are face difficulty in meeting capital requirements set by the central bank as per Basel III regulations.  Currently, non-performing loans of NIB bank stands at Rs27 billion with a gross loss ratio of 22 percent, considerably higher than industry average.         Analysts said the merger may also spark more consolidation in the country’s banking sector where almost 35 local and international banks are operating.

Singapore-based investment company Temasek owns NIB through its fund management arm Fullerton Financial Holdings Pte. Ltd. NIB Bank started operation in October 2003 when the National Development Leasing Corporation and Pakistan’s operations of the International Finance Investment and Commerce Bank were amalgamated. In 2007, NIB Bank bought Pakistan Industrial Credit and Investment Corporation for around $300 million.

Currently, NIB’s total deposits stand at Rs118 billion, which is 16 percent of MCB’s total deposits. The merger will take MCB’s total deposits to Rs887 billion and its branches to 1,395 branches after an addition of 171 branches. 

Topline Research said MCB can also benefit from the deferred tax assets of Rs9 billion (Rs7.5/share), lying on the books of NIB that could be used to reduce future tax liability.