UBL to sell entire stake in UNBL UK

Plans to establish currency exchange company in Pakistan

KARACHI:

United Bank Limited (UBL), a leading commercial bank in Pakistan, has made significant announcements that mark a strategic shift in its operations. The bank has revealed plans to sell its entire 55% stake in United National Bank Limited (UNBL) in the UK and establish a full-fledged currency exchange company in Pakistan, as outlined in a recent filing with the Pakistan Stock Exchange (PSX).

According to the notification, the decision to sell its stake in UNBL UK comes despite the subsidiary contributing positively to UBL’s net earnings during the first half of 2023. UBL’s board of directors has approved an “Indicative Offer received from Bestway Group (BG) to acquire the entire shareholding of UBL in UNBL UK,” as stated in the notification.

The financial details of this transaction, subject to regulatory approvals in both countries, have not been disclosed at this time.

Additionally, the board has given the green light to establish a fully operational currency exchange company in Pakistan, aligning with the recent invitation from the State Bank of Pakistan (SBP) for banks to express interest in the sector.

Financial experts suggest that these strategic moves are aimed at transforming UBL’s risky assets into risk-free assets, with the goal of maintaining consistent profits and enhancing dividend payments to shareholders. The currency exchange business has remained highly profitable in Pakistan for the past four years, making it an attractive venture for leading banks.

According to the notification, UNBL UK contributed an earnings per share (EPS) of Rs0.57 to UBL’s consolidated EPS for the first half of 2023, while its contribution for the full year 2022 stood at Rs0.48 per share. The Risk-Weighted Assets (RWA) of UNBL UK amounted to Rs339.2 billion as of June 30, 2023, exerting a downward impact of 200 basis points on UBL’s consolidated Capital Adequacy Ratio (CAR), said the notice.

These risky assets have been negatively affecting UBL’s CAR, and the sale of the stake is expected to boost CAR by 200 basis points to 16.4%. This strategic move will enable UBL to continue paying attractive dividends to its shareholders in the future.

An expert, speaking to The Express Tribune on the condition of anonymity, noted that UNBL UK has held significant positions in risky assets related to real-estate and real-estate investment trusts (REITs).

These assets may pose future challenges amid a global economic slowdown. It is anticipated that UBL may reinvest the funds obtained from the sale of its UK operations into risk-free government debt securities, such as T-bills and Pakistan Investment Bonds (PIBs), which are currently offering high yields exceeding 25%.

Arif Habib Limited’s analysts, Sana Tawfik and Muhammad Abrar, commented on the potential impact of divesting from UNBL UK, highlighting that the removal of UNBL UK’s risk-weighted assets (valued at Rs339.2 billion) from UBL’s balance sheet is expected to enhance UBL’s CAR. They project that the bank will maintain a CAR exceeding 16%, compared to 14.8% in the first half of 2023. This improved CAR will enable UBL to sustain its recent trend of offering higher dividends to its shareholders, following the successful sale of UNBL UK.

In addition to divesting from UNBL UK, UBL is planning to establish an exchange company as a wholly-owned subsidiary with an initial paid-up capital of Rs1 billion. This decision aligns with recent structural reforms introduced by the SBP in the exchange companies’ sector.

These reforms encourage leading banks, particularly those actively engaged in foreign exchange business, to establish dedicated exchange companies to meet the legitimate foreign exchange needs of the general public.

In a commentary, Topline Research said that UNBL UK, formed in 2001 through a merger of the UK branches of UBL and the National Bank of Pakistan (NBP), provides retail banking, wholesale banking, and treasury services to financial institutions. It also offers trade finance facilities to businesses of all sizes and operates a single branch within the United Kingdom under the trade name United Bank UK.

Published in The Express Tribune, September 13^th, 2023.

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