KARACHI, Aug 8 Askari Bank has decided not to buy Mybank Limited, sending shockwaves in the market, deepening perception that the banking industry is in distress.
The decision will hurt Mybank as it has been trying to sell its shares for more than a year while its agreements for sale were twice rejected. The information was passed on to the stock exchange.
“Askari Bank Limited herby notifies the Karachi Stock Exchange that Askari Bank has decided not to proceed with the merger of Mybank with and into Askari Bank Limited,” said a notification issued by the Askari Bank for shareholders on Friday.
Askari Bank did not say why decision was taken against the agreement which could have apparently helped Askari Bank improve its equity for meeting the paid-up capital requirement.
Banking sources said the Askari Bank's decision reflects the deteriorating situation of the banking industry.
They said the slowdown of economic growth and lowest demand from the private sector has substantially damaged the highly profitable banking industry.
“Mybank was facing tough time as its infected portfolio has risen significantly during the last six to eight months,” said a banking source. The infected portfolio made the deal costlier for the Askari Bank.
Most of the banks have been facing high rate of infected portfolio which slashed their profits during the calendar year 2008. The slow economic growth could further weaken the banking industry.
Bankers said the banks might not go for expansion through mergers and acquisitions unless the economy revives.
During 2006 and 2007, foreign banks were eager to enter Pakistan through merger or buying banks.
The NIB Bank bought PICIC Bank and Standard Chartered bought Union Bank. Many mergers took place but the scenario changed.
Mybank was unlucky as it decided late to sell its entire shares. First it signed an agreement with Hussain Lawai Consortium to sell its shares. Later the consortium deviated from the plan and refused to buy Mybank.
Sources said the amount involved in the deal of Mybank was about Rs5.3 billion but no announcement was made about the price of shares being sold.
On June 23, Askari Commercial Bank announced to acquire Mybank giving hope that Mybank would be finally merged with a bigger bank.
According to latest information, the paid-up capital of the Mybank is Rs4.243 billion, equity Rs5.148 billion and the total assets amounted to Rs41.344 billion.
“There are two dimensions of the Askari Bank's decision. One that rising portfolio of Mybank may have made the deal costlier, secondly the entire banking industry has come under influence of global recession,” said a senior banker.
He said banks failed to raise deposits during the last 12 months while they also failed to lend loans to private sector which is the engine of economic growth.
The failure of business has piled up defaulted loans and only last year banks had to see over Rs100 billion infected portfolio. The paid-up capital of Askari Bank for 2008 was just Rs4.059 billion and it improved to Rs5.07 billion by March 31. The State Bank's revised target of paid-up capital for commercial banks is Rs6 billion till end December 2009. The merger of Mybank could boost the paid-up capital of the Askari Bank.
