First-ever merger of Islamic banks in Pakistan

Published: July 28, 2010

Emirates Global Islamic and Al Baraka announce plans to amalgamate

KARACHI: Emirates Global Islamic Bank (EGIBL) and Al Baraka Islamic Bank will soon merge into one single bank. This was announced by the Chief Executive Officer of EGIBL, Syed Tariq Husain, at a press briefing here on Tuesday.

“An extraordinary general meeting of shareholders held on Tuesday, approved the scheme of amalgamation,” declared Husain.

The new institution will be called Al Baraka Bank (Pakistan) Limited. With a combined asset base of more than $582 million, the bank will boast 89 branches across 40 cities and towns. EGIBL will contribute about $175 million to the asset base and 60 branches to the network.

Al Baraka will be the majority stakeholder in the agreement, but will merge into Emirates Global because the latter is a listed company in Pakistan, while Al Baraka is currently a branch of the international Al Baraka Banking Group.

It was made clear that all employees of EGIBL will be retained, but the positions of senior level management have not been finalised as yet.

Officials from both banks have expressed hope that the process will be completed by the end of August as due diligence procedures on legal and financial conditions have already been completed. The merger will be formalised as soon as the State Bank of Pakistan (SBP) issues a formal approval.

Talks between the two banks were initiated last year and all stakeholders were taken on board before the decision was made.

The merged entity will be better positioned to comply with SBP’s regulations concerning minimum capital requirements as well as the condition that 20 per cent of all new branches must be established in rural areas.

“Given the international presence of the Al Baraka Banking Group, the merger will also open up international avenues,” hoped Husain. Growth in the banking sector has slowed in the past two fiscal years and smaller banks have suffered significantly due to non-performing loans and shrinkage in consumer banking. “Islamic banks had hoped to capture about 12 per cent of the total banking sector in Pakistan by 2012 but now that seems like a distant target. Islamic banks will probably manage to capture a share of about 9 to 10 per cent by 2012 if they continue to grow at twice the pace of conventional banks like they have in recent months,” remarked Tariq Husain.

In response to a question, Husain speculated that SBP would most likely maintain the discount rate in the upcoming monetary policy decision. He added “no one foresees rates coming down because inflation has not come down. Government is taking up liquidity that would otherwise have been available to the private sector.”

Commenting on the impact of political and economic instability on banking sector, he said that smaller banks had lagged behind the big five in past months but upcoming results would show that consolidation is underway and balance sheets are significantly healthier compared to last year.

Published in The Express Tribune, July 28th, 2010.

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Reader Comments (4)

  • Jul 28, 2010 - 1:08PM

    It’s a good move, it will be interesting to see how the likes of Dubai Islamic, Bank Islami respond. Recommend

  • IBD
    Jul 28, 2010 - 4:54PM

    Good piece of news reporting. Just one concern, could someone edit it to include the transaction price at which the merger was agreed (that is kind of important)Recommend

  • Rana Umair A Khan
    Jul 28, 2010 - 10:29PM

    Both of the Islamic banks are merging into one another to gain the synergy. It seems a good merger but also an alarming point for small banks to see the snapshot of their balance sheets. Most of the small banks are going into loss or on BEP( breakeven point).
    This seems very critical situation as we see the terms and conditions of the merger cum acquisition. It seems that Bank Al-Baraka is in panic situation that it is accepting all terms and conditions of EGIBL as in normal conditions it might be difficult to accept condition like these.
    As for as Monetary Policies by Lender of the last resort are also alarming that it should also take an optimistic look over Money Issuance problem and on rates of interest as well to control the prevailing inflation in the country. Central Bank should also overlook on the velocity of money that seems a big problem in Pakistan. Anyhow it seems that our banking sector is also influenced by world banking crises in spite of the slogans that it’s not influenced by world crises.
    In these situations Central Bank should also restructure it policies to save small banks and to save our country from Oligopoly by Big Banks and that would be a more disastrous condition.Recommend

  • Mobin Nasir
    Jul 29, 2010 - 5:37AM

    @ IBD: Since it is a merger and not an acquisition, there is no takeover price. As mentioned the combined entity will value about $582 million and the partners will share profits (and losses!).

    @ Rana Umair: It appears Al-Baraka stands to gain from the merger as it will be the majority stakeholder in the combined entity. Also, keep in mind that Al-Baraka has been in Pakistan for more than 10 years but has not grown at the pace that EGIBL has shown.

    SBP has been encouraging small banks to merge and increase their asset base for the past three years. They argue that bigger banks can offer a more broad range of services to customers and are in a better position to venture into semi-urban and rural areas.

    The effects of the global economic crisis may be muted in Pakistan, we cannot assume that we live in a total vacuum from the rest of the world. But perhaps the excessive borrowing by government may have a bigger role to play in crowding out private sector credit off-take.

    I appreciate your comments and feedback. It keeps us going!Recommend

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