Summit Bank to acquire Burj Bank majority stakes reveals a securities report that Burj Bank has informed the central bank about this.
According to the stock notice issued by the Summit Bank, “We have applied to the State Bank of Pakistan (SBP) for permission to conduct due diligence of Burj Bank.”
Summit Bank has already announced its intention to convert into a wholly Islamic bank and is currently operating as a medium-sized conventional bank with 192 branches. Acquiring a full-fledged Islamic bank appears to be in line with Summit Bank’s long-term objectives.
Every prospective buyer of a banking institution must seek due diligence approval from the central bank. However, the central bank reserves the right to bar a business group from purchasing a major stake in a bank in order to ensure overall soundness of the banking system.
Burj Bank is a relatively small Islamic bank with 75 branches across Pakistan. It has been looking for a possible investor, as it struggles to meet regulatory requirements for capital adequacy.
According to the 2014 annual report, which is the latest full-year financial account available, Bahrain-based Bank Al-Khair is its largest shareholder with 37.9% stakes. It is followed by Jeddah-based Islamic Corporation for the Development of the Private Sector with a shareholding of 33.9%. Burj Bank is not listed on the stock market.
The SBP recently allowed Bank of Khyber to conduct due diligence of Burj Bank. Earlier, two of the largest banking institutions of the country, National Bank of Pakistan (NBP) and MCB Bank, also conducted due diligence of Burj Bank. Instead of purchasing Burj Bank, MCB Bank eventually decided to set up its own Islamic banking subsidiary.
According to the latest quarterly financial accounts of Burj Bank, the bank’s capital net of losses was only Rs4.5 billion at the end of September 2015. The SBP has instructed Burj Bank that it should maintain the capital adequacy ratio (CAR) at 23% instead of the required 10%. However, the bank’s CAR on September 30, 2015, was 18.2%.
The bank said its major shareholders controlling 71.8% stake had signed an agreement with a potential investor for the injection of fresh capital in Burj Bank to acquire 51% or more shareholding.
Burj Bank posted a net loss of Rs260.8 million in January-September as opposed to the net loss of Rs379 million it made in the same nine-month period of 2014.
The net profit of Summit Bank in 2015 was Rs217.2 million, down 5.3% from its earnings in the preceding year.