LAHORE: Things are moving fast at Summit Bank. Only a few months ago the bank had first announced its intentions to convert itself into a full-fledged Islamic Bank and gain an Islamic Banking License from the State Bank of Pakistan (SBP).
Now, UAE based investor Abdullah Hussein Lootah has officially acquired a 51% controlling stake in Summit Bank. Lootah’s acquisition became possible after the bank’s board of directors issued 3.8 billion new shares which he then subscribed to injecting Rs 10 billion into Summit Bank.
“Prominent UAE national, investor, and a longstanding friend of Pakistan, H.E. Nasser Abdulla Hussain Lootah (the “Investor“), has acquired a controlling stake in Summit Bank. The Investor’s vision for the Bank is to transform it into a full-fledged Islamic bank, providing exceptional services, innovative products, and a commitment to the principles of Islamic finance.”
But Lootah’s relationship with Summit Bank and indeed with Pakistan has not been without its challenges. In fact, he was directly named in an FIA investigation looking into money laundering and fake accounts that also involved former President Asif Ali Zardari and his sister Faryal Talpur.
Back in July 2018, the Federal Investigation Agency (FIA) asked the SBP details of Summit Bank’s equity and names of chief executive officers (CEOs) of the said beneficiary firms while investigating alleged money laundering cases worth Rs 35 billion against 13 firms.
The allegations involved former President Asif Ali Zardar and his sister Faryal Talpur as well. Lootah was a key figure in this case. The FIA claimed that the money had been transferred directly into the accounts of Lootah, who was back then chairman of the Summit Bank’s board of directors.
The fake accounts case involves alleged money laundering worth billions of rupees through 32 bank accounts, which were opened in five banks. Of those accounts, 15 were opened in Summit Bank. “Lootah is considered to be a major beneficiary of these suspicious transactions, as Rs7 billion were transferred to his account,” reads the Dawn report on the subject from 2018.
The bank’s troubles and move towards Islamic banking
After the highly publicised FIA investigation that named Lootah as well, Summit as a bank buried its head in the sand. The bank failed to release its financials prompting raised eyebrows. In 2019, the bank once again failed to release its financials and as a result of this non-compliance shifted to the defaulters segment of the Pakistan Stock Exchange (PSX).
Following the demotion at the stock exchange, the bank made a feeble attempt to correct course by releasing their 2018 financials in 2020, but for a third consecutive year failed to call an Annual General Meeting (AGM).
And a full-blown money laundering investigation initiated by the FIA and NAB following a scandal involving political bigwigs such as Asif Ali Zardari and his sister Faryal Talpur was not the extent of their troubles. The bank was also facing constantly rising pressure from the State Bank of Pakistan (SBP) over its inability to fulfil regulatory requirements due to a deteriorating financial condition. In response, it very much appeared that Summit Bank had wilfully buried their head in the sand and were trying to ride the tide of the scandal out. Then, at the end of 2021, the bank released three years worth of financial statements and the picture was not pretty.
You see, Summit has never been a very profitable bank. In fact, it has posted a net profit after taxation only twice, in 2014 and 2015, in the past 10 years, that too a small one, Rs217 and Rs 230 million respectively. In the 2019 results that were released in October 2021, the bank recorded its greatest loss yet, at Rs9.4 billion. But it wasn’t that far off from the preceding year’s loss of Rs8.7 billion.
After three years in the wilderness, it seemed Summit Bank was trying to edge its way back into the mainstream and make something of itself. While the financial statements were late, following all of these mandatory disclosures, the PSX has also moved them up from the defaulters segment to its “normal counter” – meaning the bank’s stocks are up for trading once again.
However, in May 2022, Profit’s then editor and senior journalist Khurram Husain reported in an exclusive scoop that the government has committed to the IMF that Summit Bank and another bank would be sent into “resolution” by May 2023 if they don’t complete the first stage of their recapitalization plan by March of the same year. If this happens, these banks could be the next to be forcibly restructured or even sold off altogether like KASB Bank was in 2015.
The Islamic banking angle and Lootah’s acquisition
The decision to convert comes in the wake of a recent trend of growing Islamic Banking in Pakistan. On April 28, the Shariat Court announced a verdict in a long-pending, declaring the prevailing interest-based banking system as against the Shariah and directed the government to facilitate all loans under an interest-free system. The court had instructed the government to make laws within five years with regard to the implementation of Islamic banking within the country.
For Summit it became clear that going the Islamic Banking route was its only path to redemption — both perhaps to shed its former reputation and to fit in better with the demand for financial services in the country. On the 2nd of January, the bank announced its intentions.
On the 18th of January. Shareholders of Summit Bank Ltd passed a special resolution in an extraordinary general meeting back in January to authorise the equity injection of Rs10 billion from Lootah. He even went ahead and placed the promised equity with the bank as advance against the proposed issuance of shares. “Going forward, the investor intends to convert the bank to a full-fledged Islamic bank,” read the bank spokesperson’s statement.
Will it work?
Summit Bank currently has 195 branches, out of which 50 are already part of their Islamic Banking window. Its assets and deposits stood at Rs. 23 billion and Rs. 20 billion, respectively. The bank is not opening new branches of its conventional bank but converting its established branches into Islamic banking branches. The Islamic banking division of the bank made a profit of Rs. 551 million by the end of September 2022 — an impressive feat considering the bank’s otherwise dismal financial results.
And the move is a smart one in any case. Even before the Shariat Court verdict, a sizable shift had been observed towards Islamic Banking in Pakistan. Data from the SBP and Profit’s analysis of the financial statements of every single bank in the country shows that it accounts for about 20% of net new deposits between 2002 and 2019. Crucially for the industry, net new Islamic banking deposits hit approximately 30-35% of total industry net new deposits.
And the rise has only grown since then. Islamic banking assets reached around 19.5% of total assets as of end June 2022, while share of deposits reached 20.5%. On a year on year basis, assets and deposits of Islamic Banking institutions were up by 41.4% and 27.0%, respectively by end June, 2022. The country currently has 22 Islamic Banking Institutions (IBIs) with a branch network of 4,086 branches, including 1,463 windows spread across 129 districts that provide Shariah compliant banking services. IBIs include 5 full-fledged Islamic banking and 17 Islamic banking windows of conventional banks.
The country currently has 22 Islamic Banking Institutions (IBIs) with a branch network of 4,086 branches, including 1,463 windows spread across 129 districts that provide Shariah compliant banking services. IBIs include 6 full-fledged Islamic banking and 16 Islamic banking windows of conventional banks. Islamic banking assets reached around 19.5% of total assets as of end June 2022, while share of deposits reached 20.5%. On a year on year basis, assets and deposits of Islamic Banking institutions were up by 41.4% and 27.0%, respectively by end June, 2022.
“With the Investor’s acquisition and renewed focus on Islamic finance principles, Summit Bank is well-positioned to become a market leader in the banking industry. The Bank’s leadership and staff are enthusiastic about the future of the Bank and committed to providing ethical and transparent financial services to its clients,” Summit Bank said in its official press release.