Atlas merger with Silkbank on track

Wednesday, June 17, 2009

KARACHI: Atlas Bank has to finalise a merger with Silkbank by July 31 to shore up its capital which currently falls short of the central bank’s minimum capital requirement for banks, people involved in the deal said.

In a notice sent to the Karachi Stock Exchange on Tuesday, Atlas reaffirmed that the merger is on track and the swap ratio in the new entity will be discussed by its board of directors and shareholders once due diligence is completed. It did not say when the matter will be put before the board of directors. Atlas started talks with Silkbank, formerly Saudi Pak Commercial Bank, after its previous deal to merge with KASB Bank collapsed earlier in the year.

Both Atlas and KASB needed to raise their equity to at least Rs5 billion by the end of 2008. This was one of the main reasons behind the merger. While KASB succeeded by merging with its sister concern KASB Capital, a large part of Atlas’ equity was wiped off by its accumulated losses. By the end of first quarter in March, Atlas had equity of Rs3.4 billion.

Silkbank, which was acquired by a consortium of IFC, Bank Muscat, Nomura International and Sinthos Capital last year, also faces the dilemma of equity falling short of SBP’s minimum capital requirement (MCR) for 2008. At the end of first quarter of 2009, it had equity of Rs4bn.

The merger between Atlas and Silkbank will allow both banks to raise capital to over Rs6bn, which all banks must have by December 31, 2009.

Asked if a successful merger is possible, a senior executive involved in the deal said: “We can only hope that it happens because it is in the best interest of both the entities.” Merger of these two smaller banks would result in creation of a larger entity with a wider reach and sufficient capital to guarantee security to the depositors The SBP has been pushing for mergers and acquisitions to consolidate the banking industry. Another such deal, which included takeover of Arif Habib Bank by a consortium led Hussain Lawai is still not finalized.

Lawai’s consortium was supposed to increase authorized capital of the bank to Rs25 billion. Entire transaction was expected to be completed by Feb 28, 2009. After seeing that even the global banking system was in crisis, the SBP revised the MCR for banks in Pakistan.

Now banks are required to have MCR of Rs6bn by end 2009 and then they have to increase it by Rs1bn each year till 2013.


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