HBL vs Bank Alfalah: the race to buy Silkbank’s consumer lending business

It is not often that a small bank puts up a portion of its lending portfolio for sale in Pakistan. It is even rarer for that to happen and for it to matter to the broader banking industry’s competitive dynamics, but that is exactly what is happening with the announcement that Silkbank is selling its consumer lending portfolio, and that the leading contenders, at least at the moment, are Habib Bank Ltd (HBL) and Bank Alfalah.

In a press release issued on May 3, the bank announced that the two much larger banks are interested in acquiring Silkbank’s consumer lending portfolio, which is made up of credit cards, running finances, and personal installment loans. 

“The Silkbank Board of Directors has requested the State Bank of Pakistan to grant permission to both HBL and Bank Alfalah to conduct due diligence of the Silkbank Consumer Accounts portfolio prior to its possible acquisition by either of these banking entities,” the bank said in its press release.

As of the close of 2019, the most recent period for which Silkbank’s detailed financial data is available, the consumer lending portfolio at the bank stood at Rs23 billion. In the grand scheme of the Pakistani financial services sector, that is hardly anything, accounting for just 2.6% of the industry’s total consumer lending.

But it matters for three reasons. Firstly, the portfolio consists of a high margin credit card business that has a relatively low default rate, by Pakistani banking standards. Secondly, Silkbank has consistently been one of the leading consumer-facing lending banks in Pakistan, so a sale of its consumer lending portfolio represents a significant shift in the bank’s strategy. And finally, the two banks leading the charge to buy it are interesting contenders. Which one of them ends up buying it could mean some very interesting things for the shape of competition in consumer finance in Pakistan.

One additional caveat for this story: Silkbank has had some struggles with profitability and growth in recent years, and those will be the subject of a future in-depth feature about the bank. This story, however, will focus more on how it has built this attractive asset and what its sale would mean for the broader banking industry in Pakistan.