MCB Bank completes due diligence for acquisition of NIB Bank

KARACHI: Due diligence for MCB Bank’s acquisition of NIB Bank is completed with no major issues uncovered, sources familiar with the matter said on Wednesday.

They said the MCB Bank is nearing a deal to acquire NIB Bank to cash growth opportunities, branch-expansion, and scale up operations “The process of due diligence has been completed with no major issues uncovered,” a so urce said.

“The clarity on the expected deal would come soon, within next 15-20 days after the board of directors and shareholders of both the banks approved the arrangements of the proposed transaction.”    

In a written reply to a query sent by The News earlier this week, Abid Qamar, Chief Spokesperson for the State Bank of Pakistan said, “SBP has allowed MCB and NIB to conduct due diligence with regard to the proposed merger of NIB with and into MCB. The process of due diligence has been reportedly completed.”

“It may be informed that the banks, after reaching commercial terms and conditions of the proposed merger, would approach SBP in terms of Section 48 of Banking Companies Ordinance 1962 (BCO). Their requests would be considered in terms of the said provision of BCO.”

However, when contacted, the official of the MCB and NIB, declined to comment. It was not clear what the MCB Bank would pay, but current market capitalisation and book value for the two banks suggests the exchange ratio was likely to fall between 120 to 131 shares of NIB for each share of MCB Bank.

Singapore state investor Temasek had been in exclusive talks with Pakistan’s third largest private-sector lender, MCB Bank for few months to sell its over 88 percent shares in the NIB Bank, and both the parties were in discussions for a possible merger.    

Temasek owns NIB through its fund management arm, Fullerton Financial Holdings. NIB Bank started operations in October 2003, when national Development Leasing Corporation and Pakistan operations of IFIC Bank were amalgamated. In 2007 NIB Bank bought PICIC for about $300 million.

Analysts said the Singaporean state investor was looking to sell its stake in NIB Bank after heavy losses, and the sovereign fund was looking at a paper loss of about $400 million of its $540 million investment.

Many analysts believe MCB Bank was desperately looking for growth whether through an acquisition, or by organic means.   “MCB saw the acquisition as a chance to increase its branch network, improve operations and ultimately make more profit on its business,” said Mohammad Fawad Khan at KASB Securities.

“The possible takeover will add MCB to leadership status among existing peers,” Khan said.       It was on record that MCB had local banks in sight for acquisitions for the last few years. “Expansion in branches is a key source of low-cost deposits for MCB, while mid-sized banks have rolled out aggressive branch expansion plans,” Khan said.

In the past five years, MCB has been a laggard in branch expansion and has opened only 125 branches since 2010, showing a cumulative 11 percent growth in branch network. Acquisition of NIB offers MCB a chance to grow its network by 14 percent.

For NIB Bank – Pakistan’s 12th largest bank by market capitalisation, the possible merger could be a great chance to get out of losses.   The bank was struggling to be profitable, and it posted profit after tax of Rs2.617 billion in 2015 as against loss after tax of Rs508 million in the year 2014.