KARACHI: The board of directors at Summit Bank on Monday approved a merger with Sindh Bank via a share swap transaction, which is expected to complete after the necessary shareholders and regulatory approvals. The board meeting was held on August 4.
“Subject to all applicable regulatory approvals, including the approval of the State Bank of Pakistan and approval of the shareholders of the bank in a general meeting, the board of directors of the bank approved the amalgamation of the bank with and into Sindh Bank Limited under section 48 of the Banking Companies Ordinance, 1962,” the Summit Bank said in a stock filing.
“As a consequence of this proposed amalgamation, 1 (one) ordinary share of Sindh Bank Limited is proposed to be issued for every 3.85 ordinary shares of the bank.” A senior banker, said the potential merger could create a bank with assets of nearly Rs300 billion.
“The new combined entity would have 500 branches across the country, while its market capitilisation could be more than Rs30 billion,” he said. “The equity of an integrated financial institution is expected to reach Rs26 billion.”
The share of the bank was being traded at Rs4.36 at Pakistan Stock Exchange on Monday. The announcement by a lender is the latest example of consolidation in the country’s banking sector this year, where profit margins are being eroded by low interest rate environment and increasing operational cost.
NIB Bank merged into MCB in February, while a smaller Shariah-complaint lender Burj Bank had amalgamated with Al Baraka Bank last year. “The consolidation within the banking sector points to a reality that we need stronger banks [smaller-mid-tier] to sustain in this challenging capital environment,” said an analyst.
“Some small and medium banks are struggling with hard capital requirements under the Basel III regulations and same is the case with the Summit Bank,” he added.
The central bank had allowed relaxations to the Summit Bank pertaining to capital adequacy ratio (CAR) and leverage ratio under Basel III deductions along with extension in the timeline for meeting CAR till June 29 of this year.
“There is one small and two medium banks, which are facing problems in maintaining a desired capital adequacy ratio.” The State Bank of Pakistan recently reported that the CAR of banks fell to 15.9 percent in the first quarter of 2017 from 16.2 percent in the previous quarter.
It also said that prevailing capital CAR remains satisfactory and well above the minimum required level of 10.65 percent. However, the higher growth in advances mainly due to CPEC-relate projects was expected to increase the utilisation of capital and might result in downward adjustment in CAR.
The State Bank has increased capital requirements for banks to 12.50 percent till December, 2019. The gross profit of the public-sector small-tier Sindh Bank increased to Rs873.82 million in January-March 2017 from Rs776.5 million a year ago.
The bank had paid-up capital requirement of Rs10 billion with Rs16.249 billion equity in the first quarter. Deposits at the bank stood at Rs123 billion. Sindh Bank, in its first quarterly financial statements, said it’s pursuing a comprehensive bank-wide strategy aimed at increasing business volumes, net interest and fee-based incomes. It has plans to pen 40 branches during 2017, expanding the bank’s network to 300 online branches.
Summit Bank registered a profit after tax of Rs84.78 million in January-March this year, compared with loss after tax of Rs649.33 million in the same period of last year.
