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Askari Bank decides against merger with Mybank

* Sources say there was disagreement over swap ratio because one bank had a big infected portfolio

By Mushfiq Ahmad

KARACHI: Askari Bank Limited announced on Friday that it had decided not to proceed with the merger of Mybank Limited with and into Askari Bank Limited.

It did not disclose why it had taken this decision. There was no word about the merger of Askari Leasing with Askari Bank.

In June, Askari Leasing had announced its intention to merge with Askari Bank and at the same time intentions to merge Askari Bank and Mybank were also announced. Well-informed sources told Daily Times that one of the banks had a big infected portfolio because of which the two disagreed on the swap ratio. As a result, talks broke down, they said.

Another source said the two banks might have concluded that they would not be able to achieve the purpose for which they were seeking to merge.

This is the third time in recent months that banks have failed to merge after having started negotiations. In December 2008, the proposed merger of Atlas Bank and KASB failed to materialise. Later Atlas Bank and Silk Bank conducted due diligence for a possible merger, but then decided not to proceed with the proposed transaction.

Small banks have been trying to seek mergers because they have been facing problems in competing with the large banks. With limited branch networks, they are facing difficulties in mobilising deposits.

A few small banks are also facing problems in meeting the paid up capital requirements set by the State Bank of Pakistan. Banking industry in Pakistan in general is facing increasing number of non-performing loans because of economic slowdown and high interest rates.

Seeing these difficult circumstances, the central bank reduced the paid up capital requirements for banks in April this year. They are now required to raise their minimum paid-up capital (free of losses) to Rs 6 billion by December 31, 2009, Rs 7 billion by December 31, 2010, Rs 8 billion by December 31, 2011, Rs 9 billion by December 31, 2012 and Rs 10 billion by December 31, 2013.

In September 2008, the State Bank had asked banks to raise their capital to Rs 10 billion by December 31, 2010, Rs 15 billion by December 31, 2011, Rs 19 billion by December 31, 2012 and Rs 23 billion by December 31, 2013.

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