HBL, MCB in the race to buy RBS Pakistan

KARACHI - Habib Bank and MCB Bank have shown their expression of interest in acquiring the shareholding of Royal Bank of Scotland, Pakistan.
The HBL and MCB are seeking approval from the State Bank to commence the due diligence of RBS Pakistan. After getting permission from the central bank, MCB and HBL would enter into a process of due diligence in a view to evaluate both banks offer for the acquisition of RBS Pakistan.
Worth mentioning is that the Royal Bank of Scotland Group had been badly affected from the global financial crisis therefore, the group had decided to dissociate itself from the business operations of different regions. In this regard, RBS Pakistan on February 26, 2009 had sent a notice to the KSE to divest from Pakistan as part of its global strategy and restructuring process.
According to the sources, the top level management of Habib Bank and MCB Bank has been engaged in negotiations with the key stakeholders of RBS to convince them over the investment amount they have offered.
Banking sources are of the view that, with this development a competition between two financial giants for the acquisition of RBS has started yet that stunned the capital market circles on Monday.
Sources also said the deal is expected to be executed through a transparent bidding under the supervision of SBP. The ball is in the court of SBP because it would decide about the potential buyer of RBS as both banks are the heavyweights of the banking industry. But it seems SBP will try to conclude this transaction smoothly and speedily.
As per the financial break-up for the CY-2008, RBS had equity of Rs17b, deposits worth Rs79b and advances of Rs68b. The small sized local and foreign commercial banks are desperately looking for merger and acquisition deal due to facing heavy losses in their balance sheets, sources said.
At this crucial time, the central bank neither wants local nor the foreign financial players to close down their operations here. Despite the fact that small and medium-sized banks are facing difficulties in meeting the standard of paid-up capital prerequisite set by SBP amid lack in investment opportunities and inflated cost of funds, sources added.
SBP has been encouraging the merger and acquisition of banking entities across the banking sector for the last year. This persuasion is in line with consolidation policy to make the financial sector of Pakistan more vibrant, robust and resilient
It must be recalled here that the SBP had raised the minimum paid up capital requirements for all locally incorporated banks to Rs 23 billion (net of losses), which is to be achieved in a phased manner. The banks are need to have minimum paid up capital of Rs 5 billion by end of 2008; Rs 6 billion by end of 2009; Rs 10 billion by end of 2010; Rs 15 billion by end of 2011; Rs 19 billion by end of 2012 and Rs 23 billion by end of 2013.
MCB Bank posted Rs 15.4 billion profit after tax during calendar year 2008 (CY08) as against Rs15.3 billion of last year.
MCB deposits showed a healthy growth of 13 percent and closed at Rs 330 billion whereas its gross advances portfolio increased by 19 percent and closed at Rs 273 billion in 2008. This along with improved profitability has resulted in an increase in shareholders equity before surplus of Rs 52 billion up by 15 percent over 2007. Capital adequacy of the Bank is in excess of 15 percent.
HBL declared a profit after tax of Rs15.61 billion in 2008. The banks NIM rose by 40bps YoY on account of higher yields on earning assets as interest spreads widened by 33bps during the year. Moreover, advances to deposit ratio increased by 500bps amid slowing deposit growth, which contributed to the growth in nil.
According to company profile, MCB is one of the leading banks of Pakistan with a deposit base of about Rs 280 billion and total assets of around Rs300 billion. Incorporated in 1947, MCB soon earned the reputation of a solid and conservative financial institution managed by expatriate executives. In 1974, MCB was nationalised along with all other private sector banks.
The Bank has a customer base of approximately 4 million and a nationwide distribution network of 1,026 branches, including 8 Islamic banking branches, and over 300 ATMs, in a market with a population of 60 million.
During the last fifteen years, the Bank has concentrated on growth through improving service quality, investment in technology and people, utilising its extensive branch network, developing a large and stable deposit base.
HBL established operations in Pakistan in 1947 and moved its head office to Karachi. Its first international branch was established in Colombo, Sri Lanka in 1951 and Habib Bank Plaza was built in 1972 to commemorate the banks 25th Anniversary.
With a domestic market share of over 40pc, HBL was nationalised in 1974 and it continued to dominate the commercial banking sector with a major market share in inward foreign remittances (55pc) and loans to small industries, traders and farmers. International operations were expanded to include the USA, Singapore, Oman, Belgium, Seychelles, Maldives and the Netherlands.