Central bank approves merger

State Bank gives the green signal for the merger of Atlas Bank Limited with Summit Bank Limited.

KARACHI: The State Bank of Pakistan (SBP) has given the green signal for the merger of Atlas Bank Limited with Summit Bank Limited (SBL).

According to a letter dated December 15, 2010 the SBP has sanctioned “the scheme of amalgamation of Atlas Bank Limited with and into Summit Bank Limited under Section 48 of Banking Companies Ordinance 1962.”

SBP’s approval has mandated Summit Bank to meet any shortfall in minimum capital requirement (MCR) which may arise during or after the merger. The central bank has also instructed the sponsor consortium, Suroor Investments, to inject fresh equity of at least Rs2.5 billion through right offer in Summit Bank Limited. The additional funding will help the combined entity maintain its MCR and capital adequacy ratios.

Additionally, the central bank has also instructed Summit Bank to submit a business plan for improving its financial position prior to the amalgamation.

According to the letter issued by SBP, the plan should lay down strategies for improving SBL’s risk management function, liquidity management, compliance, credit management system, capital adequacy, level of non-performing assets and internal audits.

The plan must also specify the markets that the merged entity will target. Summit Bank has to submit this plan next month.

Earlier, shareholders of both banks had met in separate extraordinary general meetings on November 6, 2010 to seek the approval of stakeholders for the intended merger. The two banks had individually filed applications for approval from the central bank on November 8, 2010.

“Given the fact that the central bank has progressively increased capital adequacy requirements, the move towards amalgamation comes as no surprise,” said the director for research of Invest and Finance Securities, Khalid Iqbal Siddiqui.

“Both banks have been loss-making entities and the idea is to improve on that with their combined strength,” said Siddiqui, adding that “soon MyBank will also be a part of this combined entity and that will help the entity improve its market presence somewhat”.

Analysts also expect some other banks to follow a similar path in coming months. “The only exceptions to this may be some international banks that have a relatively smaller presence in the country,” said Siddiqui.

Published in The Express Tribune, December 22^nd, 2010.