SBP allows HBL, Bank Alfalah to conduct Silkbank’s due diligence

KARACHI: The central bank has green-signaled Habib Bank and Bank Alfalah to validate the business viability of Silkbank’s consumer banking portfolio put for sale following a recent withdrawal of a multi-industry company from the deal.

Abid Qamar, chief spokesman of the State Bank of Pakistan (SBP) told The News that the central bank granted approvals of due diligence to Habib Bank and Bank Alfalah on their and Silkbank applications.

The financial terms were not disclosed. But the fund will help the bank to meet capital requirements. Banks are needed to maintain the minimum capital requirement (MCR) of Rs10 billion and capital adequacy ratio of 11.5 percent. Silkbank, formerly Saudi-Pak Commercial Bank, is mainly owned by Arif Habib Corp. with 28 percent shareholding, Finance Minister Shaukat Tarin (12 percent), International Finance Corporation (8 percent), Nomura (4 percent) and Bank of Muscat (3 percent).

“I think the reason why shareholders of Silkbank is seeking to sale its consumer banking business is because it’s one of the only few good things about the bank and therefore sellable,” said Masroor Hussain, a senior research analyst at Foundation Securities.

In 2019, the bank made a loss of Rs3.9 billion – 37 percent of its equity. As a result, as per the latest available financials (1QCY20) the bank was unable to meet the MCR set by the SBP.

The bank’s loan portfolio was overwhelmed by the bad loans constituting about 32 percent of the total loan book with the provision coverage of only 21 percent. Furthermore, the bank’s current accounts and savings account of 61 percent i.e. much lower compared to peers also burdened it with the high cost deposits.

“As per the numbers, the bank doesn’t seem in a very good shape so it is unlikely to attract any buyers specially when it is trading at P/BV [price to book value] of 1.2x whereas most of the profitable banks are trading below their book values,” Hussain said. “So, Silkbank’s consumer/SME business is the only thing which can attract some investor attention as it accounts for 63 percent of the total deposit base and 40 percent of the performing loans with moderate infection ratio of 5.04 percent.

As per 2019’s annual accounts, the consumer/SME segment generated Rs3 billion in profits. The said business includes gross lending of Rs32.7 billion with a low infection ratio of 5.04 percent and HBL and BAFL with their decent consumer book size and low infection ratio seems very much in position to acquire and run it. Prior to HBL and BAFL, Fauji Foundation also showed intention to buy the Silkbank, but it backed off from the deal for unknown reasons.

Silkbank has retained its market share, despite difficult circumstances, and is one of the leading personal loans and credit card issuers in the market, it said in a statement issued last month.

The bank is one of the top three banks in terms of credit card repayment volumes via digital channels, it added.

Analysts said the minimum capital requirements and increasing pile-up of non-performing loans due to COVID-19 have not left any option for the small banks, but to be merged with the large and profitable ones.

“I don’t see many opportunities [acquisition and merger deals] in the sector at the moment but some distressed small banks and over-capitalised large banks can be a good match,” Hussain said.