Early on Monday morning, a major development occurred in the banking sector. MCB Bank Limited (MCB) has expressed interest in one of the smallest banks of Pakistan, Silkbank Limited MCB informed Pakistan Stock Exchange (PSX) that its Board of Directors (BoD) has given a green signal to the management to conduct due diligence of Silkbank Limited.
This ‘due diligence’ will set the course for MCB’s future actions as the bank stated that the potential transaction is subject to favourable outcomes of due diligence, internal and regulatory approvals and definitive documents.
Organisations that expressed interest in Silkbank
MCB Bank is the fourth party that has expressed interest in SilkBank in recent times.
In April, 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.
On May 2, 2023 United Bank Limited (UBL) announced its intention to formally pursue a potential merger with SilkBank.
Previously 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.
What is in it for MCB (and other investors that have expressed their interest in the Bank)?
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. MCB could expand its outreach by merging with Silkbank. It could merge its Islamic banking operations with Silkbank to appease the ever-growing demand for Sharia-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.
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.
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