MCB Bank has completed the due diligence for acquiring NIB Bank Limited. The acquisition is being made in order to scale-up operations and expand branches of MCB.
As per analysts another possible reason is the expected tax benefit of Rs 9.5 billion in the form of deferred tax asset currently on the balance sheet of NIB Bank, which can lower MCB’s tax rate to 11 per cent from 35 per cent if it is utilised completely in 2016.
According to reports, State Bank of Pakistan (SBP) had allowed both the banks to conduct due diligence with regard to the acquisition and the process is complete now. Other stakeholders such as the Securities and Exchange Commission of Pakistan (SECP) and Competitive Commission of Pakistan (CCP) were also involved prior to permitting the banks to conduct the due diligence.
Once the banks have reached the commercial terms and conditions of the proposed merger, the SBP will consider their request under Section 48 of Banking Companies Ordinance (BCO) 1962.
However, officials of both the banks have declined to comment on it. It is unclear what the MCB Bank would pay for the takeover. When the rumour of a merger surfaced in March this year, the market responded positively and the share price of NIB went up. However, it is also true that the bank has a very high ratio of non-performing loans as a percentage of outstanding advances.
Singapore state investor Temasek Holdings owns 88.4 per cent of NIB Bank’s share through its fund management arm, Fullerton Financial Holdings. The bank commenced its operations in October 2003 and bought PICIC in 2007.
Analysts said that Temasek wanted to sell its stake in the bank after heavy losses, and the sovereign fund was looking at a paper loss of about $400 million of its $540 million investment.
Many analysts believe that the takeover would allow MCB to gain the status of leadership in the market by growing its network by 14 per cent, while NIB Bank would have a good chance at getting out of losses. It posted profit after tax of Rs 2.617 billion in 2015 as against a loss after tax of Rs 508 million in the year 2014.
After the acquisition, MCB will become the second largest bank in Pakistan with 1,424 branches while its deposit base is likely to go up by 17 per cent to Rs 830.5 billion.