HBL intends to acquire Silkbank as Fauji Foundation backs off

KARACHI: Habib Bank Limited (HBL) is exploring a possibility of acquiring Silkbank’s consumer portfolio after Fauji Foundation backed off from the deal.

“We would like to inform you that Fauji Foundation will not be proceeding with the due diligence process of Silkbank Limited, in pursuance of its application in this regard,” the Silkbank said in a filing with the bourse on Thursday.

“Accordingly, the board of directors of Silkbank Limited in its meeting held on April 7, 2021 has accorded its in-principle approval for the same.” Silkbank Limited accorded in-principle approval to HBL to conduct due diligence of the consumer portfolio of Silkbank. Financial terms were not disclosed. “The divestment of Silkbank’s portfolio would help HBL to increase its portfolio size and net interest income,” said an analyst from KASB Securities.

In January, a multi-industry company Fauji Foundation got consent of Silkbank Limited to acquire the bank’s majority stake. Fauji Foundation, also known as Fauji Group, runs more than 18 industries. The group already owns and operates Askari Bank. The bank’s board of directors had given in-principle approval to allow Fauji Foundation to conduct the require diligence and evaluate the information

HBL has the highest advances in the industry at Rs1.2 trillion as of December 2020, translating into an advances-to-deposit ratio of 42 percent.

HBL requested Silkbank Limited to provide its concurrence to HBL to apply to State Bank of Pakistan to proceed with the due diligence of the consumer portfolio of Silkbank Limited. The consumer portfolio comprises of credit cards, running finance and personal installment loans (consumer portfolio), “in order to explore the possibility of hbl’s potential interest in the same.” Silkbank’s advances stood at Rs105 billion as per its latest available annual accounts. Silkbank has the highest exposure in real estate and construction of Rs26.1 billion, individuals at Rs23.4 billion and Rs17.7 billion to wholesale and retail sectors.

Silkbank Limited, formerly known as Saudi-Pak Commercial Bank, is a Pakistani commercial bank which is based in Karachi, Pakistan. It has a branch network of 123 in 39 cities.

Banks’ profitability, which has materially increased during 2020, will come under pressure on lowered margins, higher loan-loss provisions given the challenging operating environment, and subdued business generation, according to a Moody’s latest report. “Stable outlook for Pakistan's banking system reflects banks' solid funding and liquidity, although a challenging – but improving – operating environment will weigh on asset quality and profitability,” it said.