Silkbank, UBL in talks for potential merger

This is the third party to express an interest in Silkbank in recent times. 

KARACHI: Silkbank is once again in the talks of the town. According to a filing to the Pakistan Stock Exchange (PSX) shared by the Silk Bank, United Bank Limited (UBL) has expressed interest in a potential merger with Silkbank Limited.

“The potential merger will remain subject to due diligence, internal and regulatory approvals and definitive documents,” it said.

“The Board of Directors of the bank has reviewed and considered the UBL proposal and granted its approval to the management of the bank to formally pursue the potential merger and take the required steps, including but not limited to seeking permission of State Bank of Pakistan (SBP) for allowing due diligence of the bank and to enter into discussions with UBL, to finalise the terms and conditions/documentation for placing before the Board, for its consideration and approval, if considered appropriate,” it added.

What is in it for UBL?

Silkbank, formerly the Saudi-Pak Commercial Bank, is primarily focused on the consumer segment with a portfolio of services consisting of consumer loans, and credit cards. The smallest bank of Pakistan manages a good credit card and personal loan portfolio and has sound Shariah-compliant products. UBL could expand its outreach by merging with Silkbank. It could merge its Islamic banking operations with Silkbank to appease the ever growing demand for Shariah-compliant financial products.

What is in it for Silkbank?

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.

Organisations that expressed interest in Silkbank

Silkbank has a history of drawing the attention of investors and UBL has emerged as the third potential investor in a short span of time. 

Last month, the International Commercial Bank (ICB), a South Sudanese bank, expressed its intention to invest up to 50 million euros (equivalent to Rs 15.4 billion) in Silkbank. 

Later on, Pakistan Housing Finance Company (PHFC), a subsidiary of Lake City Limited and a leading 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, proposed an investment of up to Rs 12 billion into Silkbank Limited’s equity.

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.

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 categorized 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.

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Mariam Umar Farooq
Mariam Umar Farooq
The author is a business journalist and a member of the staff. She can be reached at [email protected]



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