In addition to KASB Bank, Silk Bank, Bank of Punjab and Summit Bank are currently operating below the statutory minimum capital adequacy ratio (CAR) of 10%.
CAR measures the soundness of a banking institution and reflects the level of protection its depositors enjoy. CAR is expressed as a percentage of a bank’s risk-weighted credit exposures.
“Investors have called us up to ask about these banks,” Arif Habib Limited Assistant Vice President for Investment Research Saad Khan told The Express Tribune.
Referring to a research note that his brokerage house has issued on Summit Bank’s financial health, Khan said it will double its CAR and meet its minimum capital requirement (MCR) before the end of 2014.
It should be noted that the Arif Habib group still retains a small holding in Summit Bank, which was formerly known as Arif Habib Bank.
Khan said that besides long-term improving core operational efficiency, the bank is expected to realise an amount of Rs7 billion before the end of 2014 through right issuance at Rs10 per share.
Noting that the situation at Silk Bank and Summit Bank is not as intimidating as it is presumed, Khan said the underlying fundamentals and structural differences make them different from KASB Bank.
“Profitability is rolling fast in these banks and a capital raising plan is already in progress. These banks have cleaned up much of their asset sheet contrary to KASB Bank, which was thinly capitalised,” he said.
Arif Habib Limited believes Summit Bank will ‘soon’ be meeting its MCR requirement because of two key factors: the right issuance and the generation of positive operating income going forward.
Out of a total subscription target of Rs7 billion, Summit Bank has already realised Rs3.9 billion in lieu of the advance of right issuance while the additional balance of Rs3 billion is expected by December 15.
“Subsequently, Summit Bank’s post-right issuance capital net of losses will improve significantly to Rs9.1 billion. We expect post-right issuance diluted book value per share at Rs5.22 against the book value per share of Rs2.11,” he said.
The additional capital injection will almost double the CAR from 4.4% in 2013 to roughly 9.5% in 2014 given a 1.5 times increase in its tier-one net capital (or core capital), Khan said.
Published in The Express Tribune, November 28th, 2014.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
COMMENTS (3)
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ
@Umer: I am surprised Bank of Khyber is not on this list. To my understanding they have had several capital shortages in the past due to giving loans to corrupt politicians aka CM Khattaks friends.
One reason for summit bank is due to political influence of ppp
A little conflicted don't you think? You take opinion of a shareholder of a troubled bank and say it is OK. Why not take the opinion of other brokerage houses or analysts? What about the other banks you mentioned (Silk and Bank of Punjab). No comment on those?