On the radar: four banks still below minimum capital requirement

IMF says banks have yet to meet MCR of Rs10 billion

KARACHI:

The International Monetary Fund (IMF) has said that as many as four small banks operating in Pakistan are still below the minimum absolute capital requirement.

In its seventh review under the Extended Fund Facility (EFF), the IMF said these banks have yet to meet the minimum capital requirement (MCR) of Rs10 billion, although they fulfill the capital adequacy ratio requirement of 10% of their risk-weighted credit exposures.

Without naming these banks, the Washington-based lender said the State Bank of Pakistan (SBP) has devised a time-bound plan to bring them into regulatory compliance.

Speaking to The Express Tribune, Taurus Securities Head of Research Zeeshan Afzal said the ‘equity without surplus’ of Silk Bank, Bank Islami, Burj Bank and First Women Bank was less than Rs10 billion at the end of the first quarter of 2015.

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Overall, the IMF called the progress on banks’ capitalisation satisfactory’. Following the amalgamation of one capital adequacy ratio (CAR) noncompliant bank (KASB Bank) into another private bank (Bank Islami) in May, the IMF said only one bank has now a small CAR shortfall.

Although the IMF did not specify the bank’s name, data shows it referred to Silk Bank, which became CAR-compliant through a rights issue at the end of the last fiscal year.

“Staff stressed the need for the supervisor to continue engaging with that bank to monitor its plans for remaining CAR-compliant thereafter,” the IMF said its latest review report released on Thursday.

In the Memorandum of Economic and Financial Policies submitted to the IMF, the government had assured the IMF that the SBP was making progress in bolstering banks that were below the regulatory capital adequacy requirement. Only one out of 36 banks remained CAR-noncompliant, the memorandum said.

Read: Regulatory approval: Silkbank wins SBP nod for right share issue

However, according to more recent stock filings, the SBP has given final approval to Silk Bank for the issuance of right shares that will enable it to comply with regulatory requirements of MCR and CAR.

The rights issue is expected to be completed before August 15. The bank will issue over 6.4 billion right shares at Rs1.56 per share, reflecting a discount of Rs8.44 per share.

Silk Bank has already received Rs2 billion as advance against shares in the subscription account, assuring the completion of the issue and increasing the capital base of the bank to Rs16 billion.

Read: ‘Most banks to meet capital requirements’

The IMF said the banking system indicators remain sound with robust earnings and high solvency ratios.  “Despite a slight deterioration in banks’ asset quality, banking system profitability and the capital adequacy ratio (CAR) have increased in the third quarter of 2014-15,” it said, adding that liquidity in the banking system has remained adequate.

Published in The Express Tribune, July 4^th, 2015.

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