August 13, 2002	Tuesday	Jamadi-us-Saani 3, 1423

ISLAMABAD, Aug. 12: Securities and Exchange Commission of Pakistan (SECP) has cleared 14 schemes of mergers involving leasing companies, modarabas and mutual funds as part of its efforts to bring about consolidation in the non-banking financial sector.

Of these, a SECP source stated here on Monday, nine mergers have been approved by the High Court as required under the law. As a result, as many as 17 institutions have been merged.

The number of companies still left after these mergers, however, is still rather large. These include 45 modaraba companies, 30 leasing companies, 14 mutual funds including 11 private sector closed-end mutual funds, as stated by Ms Saadia Khan, Executive Director, Specialised Companies Division (SCD) of SECP.

The SECP, she said, had been emphasising the dire need of consolidation in the non-banking financial sector in order to enhance their capital base, achieve economies of scale and improve their competitiveness and effectiveness.

This was considered necessary because over the last ten years, massive proliferation of NBFIs, like investment banks, leasing companies and modarabas had led to fragmentation and structural weaknesses in the financial sector.

Most of the mergers involve modaraba companies as follows: (1) Mercantile Leasing with Universal Leasing Limited; (2) Ibrahim Leasing with Ibrahim Modaraba; (3) Atlas Leasing Limited and Atlas Investment Bank Limited; (4) Gandhara Leasing Limited with Al-Zamin Leasing Modaraba; (5) PILCORP with Trust Investment Bank Limited.

Within the Modaraba sector, in addition to the cross-sector mergers mentioned above, two more mergers took place between First Confidence Modaraba and First Crescent Modaraba; and between Guardian Leasing Modaraba and First Providence Modaraba.

Similarly, in the mutual fund sector, BSOS Balance Fund merged with Confidence Mutual Fund in 2001 followed by another merger with Security Stock Fund in fiscal year 2002. The merged entity will be managed by ABAMCO Limited, which is also managing UTP.

Earlier this year, the source recalled, the SECP had worked closely with the State Bank of Pakistan and the Central Board of Revenue to recommend certain tax incentives for mergers/amalgamations of banks and NBFIs. These concessions were subsequently enforced through the Finance Ordinance, 2002.

Expected to go a long way towards consolidation of non- banking financial sector, these incentives include carry-forward and set-off of losses of merged institutions, tax admissibility of expenses on merger, continued availability of unabsorbed depreciation and admissibility of different tax rates to banking and non-banking operations of a merged institution.