The majority shareholder of NIB Bank is in talks with MCB Bank for its merger with and into one of Pakistan’s largest commercial banks, a securities filing said on Tuesday.
MCB is holding preliminary and non-binding discussions with Fullerton Financial Holdings, which controls 88.4% shares in NIB through its wholly owned subsidiary Bugis Investments Mauritius, for a possible merger. Temasek Holdings, which is the investment arm of the government of Singapore, owns 100% shareholding in Fullerton Financial Holdings.
According to an analyst, NIB will cease to exist as a brand should the two parties agree to a price and receive necessary regulatory approvals. Given the stock price of Rs2.38 with the bank having as many as 10.3 billion outstanding shares, the market capitalisation of NIB at the end of Tuesday amounted to Rs24.5 billion.
It is unclear as to what exactly has prompted MCB Bank to show interest in acquiring NIB, a third-tier bank with net assets of just Rs17.1 billion. In contrast, MCB is the country’s third most profitable bank (Rs25.5 billion) and fourth largest with net assets of Rs137.8 billion.
“First look suggests no real synergy for MCB Bank… apart from a huge deferred tax asset of Rs9.5 billion on NIB Bank’s books,” said Alfalah Securities Deputy Head of Research Fahad Irfan about the reason for the possible merger of NIB into MCB.
NIB has more than 170 branches across the country and employs 2,678 people. Its profit after tax in 2015 was Rs2.6 billion as opposed to a net loss of Rs507.7 million recorded in 2014. Last month, NIB also sold its asset management subsidiary, PICIC Asset Management, to HBL Asset Management for Rs4.1 billion.
One of the weak points of NIB is its relatively high non-performing loans (NPLs) as a percentage of outstanding advances. Its gross and net NPL ratios are 20.9% and 3.6%, respectively, while significantly higher advances are reflected by an advances-to-deposits ratio (ADR) of 85%.
“With coverage of 86%, we see the high NPL ratio as a risk to the bank’s earnings going forward,” Irfan said.
According to AKD Securities senior investment analyst Zoya Ahmed, the transaction will constitute an effective way for MCB to grow organically. “The acquisition – if it goes through – will make MCB the second largest bank in Pakistan with 1,424 branches while its deposit base should likely go up 17% to Rs830.5 billion,” Ahmed said.
She noted the tax benefit of Rs9.5 billion in the form of a deferred tax asset currently on the balance sheet of NIB Bank can lower MCB’s tax rate to 11% from 35% if it is utilised completely in 2016.
The stock market reacted positively to the news of a possible merger. As many as 75.4 million shares changed hands on Tuesday with the stock price of NIB rising 10.7% in intraday trading to close at Rs2.38 per share.
Published in The Express Tribune, March 16th, 2016.