Cut your losses: Temasek may be selling off NIB Bank to Chinese bank

Industrial and Commercial Bank of China rumoured to acquire Pakistani lender.

KARACHI:

Fed up with mounting losses at its only major investment in Pakistan, the Singapore-based Temasek Holdings is selling off its stake in NIB Bank and is reportedly in talks with the Industrial and Commercial Bank of China, sources told The Express Tribune.

Senior management officials at NIB Bank were so tight-lipped about the transaction that, not only did they refuse to discuss the matter, but they even refused to go on the record as having said that they have no comment. Neither the ICBC not Temasek Holdings were available for comment, despite repeated attempts to contact them by The Express Tribune.

That Temasek is unhappy with the management at NIB has been made obvious recently by the boardroom reshuffle at the bank, with Khwaja Iqbal Hassan resigning as the CEO and Aamir Zahidi taking his place for the interim period. Pakistan Today reported that the resignation came under from Temasek, who were unhappy with his performance at the helm of the bank.

Temasek certainly has reason to be unhappy. The Singaporean state-owned institutional investor has ploughed about $540 million into NIB Bank and has thus far seen the bank make close to $400 million in losses. At the close of trading on Wednesday, NIB Bank had a total market capitalisation of approximately $154 million, which values Temasek’s 74% holding (through its subsidiary Bugis Investments) at $114 million.

Meanwhile, ICBC has been slow to get off the mark in Pakistan. It acquired a banking licence in December 2010 as the Pakistani branches of a foreign bank – and so would face fewer restrictions and lesser capital requirements. Currently, the bank only has two branches, one in Karachi and the other in Islamabad. Both are obscure and are not even listed anywhere on any of the ICBC’s global website. The bank does not have a dedicated website for Pakistan.

Sources in the banking industry say that ICBC has definitely been looking for acquisition targets. At one point in the past year, there were rumours of the Chinese giant possibly acquiring Faysal Bank. That rumour, however, was quickly dismissed since Faysal Bank is not for sale. Faysal’s Saudi owners are reported to be quite happy with their Pakistani bank’s profitability and growth.

ICBC is the world’s most profitable bank and largest by market capitalisation. It is one of the Big Four banks in China, though not the largest in its own home market. In recent years, ICBC has been looking to aggressively expand its presence abroad. Chinese state-owned banks have been pursuing this push abroad as part of Beijing’s efforts to be seen as a financial power on par with the United States. In addition, Chinese banks are expanding operations to ensure that they can serve China’s increasingly multi-national businesses.

While many of the smallest banks in the industry are desperate to be acquired, NIB Bank may be the single largest bank that is up for sale. Nevertheless, not all observers think it would be a good idea for ICBC to buy the bank without being offered a steep discount on its current price.

“ICBC should be paid by Temasek to acquire NIB Bank,” said one source in the financial services sector and a former employee of NIB bank, who wished to remain anonymous.

The source was scathing in his assessment of NIB’s culture. “How do you lose Rs42 billion in four years? It is clearly a case of a complete lack of competence and moral hazard. That bank has a culture of brushing things under the carpet, which then comes back to haunt them.”

NIB is also one of the most inefficient of the middle tier banks. Its intermediation cost – the ratio of its operating costs to its total deposits – comes to 7.33%, according to its financial statements for the year ended December 31, 2010. No bank in the Pakistan’s top or middle tier has a higher ratio, with most having a ratio of 4% or less. The share is currently trading at Rs1.49 and was the second in volume leaders for the day.

Published in The Express Tribune, December 27^th, 2011.