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Atlas, Saudi Pak banks agree for a potential merger

By Mushfiq Ahmad

KARACHI: The boards of Atlas Bank and Saudi Pak Commercial Bank have agreed for a potential merger of the two entities, according to notices sent by both banks to the Karachi Stock Exchange.

A notice issued by Atlas Bank said the majority shareholders of SPCB had entered into a memorandum of understanding with the sponsors of Atlas Bank for merger of Atlas into SPCB, subject to State Bank of Pakistan's and other regulatory approvals.

The swap ratio for the merger will be determined based on the valuation by a mutually agreed firm of chartered accountants and on the results of due diligence to be undertaken by SPCB and Atlas on each other respectively after obtaining SBP approval for conducting such due diligence.

Mergers of small banks had been widely anticipated in the wake of enhanced paid up capital requirements set by the central bank for banks last year.

The SBP had decided in September last year to raise minimum paid up capital requirements for all locally incorporated banks to Rs 23 billion (net of losses) to be achieved in a phased manner in order to further strengthen the solvency of individual bank / DFI. The paid up capital requirement is Rs 6 billion by the end of 2009; Rs 10 billion by 2010; Rs 15 billion by 2011; Rs 19 billion by 2012; and Rs 23 billion by 2013.

Although both banks did not disclose why they had decided to merge, it is clear that in their separate status both of them would not have been able to meet the paid up capital requirements enhanced by the SBP.

According to Atlas Bank's annual report for 2008, paid up capital of the bank at the end of the year stood at Rs 5.001 billion. Saudi Pak Bank had said in its annual report for 2008 that the bank would require additional capital to continue meeting the statutory MCR due to historical losses in the credit portfolio inherited by the new management.

After the two banks are merged into one, it is expected that the new entity would be looking for buying two more small-sized banks because even the merged entity wouldn't be able to meet the paid up capital requirements of SBP, said sources.

It is pertinent to mention here that Atlas Group and KASB had announced in October last year that they would merge KASB Bank, KASB Capital and Atlas Bank to form KASB Atlas Bank. However, progress on that understanding reached between the two stalled towards the end of December owing to change in valuation of one of the banks.

A consortium led by former banker Hussain Lawai bought a majority stake in Arif Habib Bank, a relatively small bank, last year. It is expected that the consortium would seek further acquisition(s).

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