Leading consortium expresses interest in Silkbank

KARACHI: Silkbank, has once again attracted the interest of investors. In recent news shared with the Pakistan Stock Exchange, the Pakistan Housing Finance Company (PHFC), a subsidiary of Lake City Limited, has proposed an investment of up to Rs 12 billion into Silkbank Limited’s equity. In contrast, the value of the bank is approximately Rs 10 billion on the stock exchange.

PHFC is a Non-Banking Finance Company (NBFC) offering Shariah-compliant home loan products for affordable housing.

PHFC is leading a consortium of an investor group, supported and backed by the renowned management of Burj Capital, which carries the required experience of setting up and successfully managing Islamic and conventional banks in Pakistan. The notice said that Pakistani business conglomerate, Arif Habib Group, will also participate in the consortium as a minority stakeholder. Interestingly, Arif Habib Corporation, a holding company of Arif Habib Group, holds 28.23% of the stake in Silkbank.

The Board of Directors of Silkbank has granted an “in-principle approval” for allowing PHFC to conduct the required due diligence of the bank, which is subject to the approval of the board, shareholders, the Securities and Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan (SBP).

According to a press release issued by Silkbank, it is expected that this investment will provide a significant boost to Silkbank’s financial position and will enable the bank to further expand its operations by investment into its flagship retail and consumer portfolios which continue to be amongst the top performing businesses in the industry. Bank’s consumer division, with credit cards and personal loan products have registered phenomenal growth in recent years which is a testament of the customer confidence reposed in the bank, it read.

Organisations that expressed interest in Silkbank

Silkbank has a history of drawing the attention of investors, including an international investor. Earlier this month, the International Commercial Bank (ICB), a South Sudanese bank, had expressed its intention to invest up to 50 million euros (equivalent to Rs 15.4 billion) in Silkbank.

Amongst the local investors that expressed interest in the bank include Fauji Foundation. In early 2021, Fauji Foundation, which has a stake in Askari Bank,  expressed interest to acquire a major stake in Silk Bank. When it lost interest, Habib Bank and Bank Alfalah became interested in acquiring Silk Bank’s consumer portfolio in mid 2021. In May 2022, Park View Enclave (Private) Limited, owned by businessman and politician Aleem Khan, expressed interest in acquiring 51% of the stake in Silk Bank which also withdrew its intention in October 2022, citing a change in its business priorities.

Why does Silkbank need an investment?

Silkbank has been making losses for a few years now. The bank reported a profit of Rs 13.2 billion in 2018. Thereafter, it reported a net loss of Rs 3.95 billion in 2019 which increased to Rs 6.57 billion at the end of 2020. Its accumulated losses amounted to Rs 20.27 billion at the end of 2020, the latest period for which the bank has published its financial accounts. 

Its capital stood at Rs 3.16 billion against the prescribed minimum capital requirement of Rs 10 billion at the end of 2020. Similarly, its capital adequacy ratio was -4.45% against the prescribed level of 11.5% on Dec 31, 2020.

Needless to say that the bank is in desperate need of new capital to meet regulatory requirements. Earlier this year, Silkbank said in a press release that the bank is on a growth trajectory. But annual reports have not been made available to the public.

Who has stakes in Silk Bank?

According to Silk Bank’s latest annual report for the year ending December 2020, around 62.91% of the bank’s shares are held by associated companies and related parties. This can be further categorised as the Arif Habib Corporation holds 28.23%, Shaukat Tarin holds 11.55%, the International Finance Corporation holds 7.74%, Zulqurnain Nawaz Chattha 7.76%, Nomura European Investment Ltd 3.93%, Bank Muscat holds 3.48% and Azmat Shahzad Ahmed Tarin holds 0.22%.

Separately, the directors and chief executive hold 4.62% of the bank’s shares.