KARACHI: HSBC has decided to sell its local operations to Meezan Bank, and is set to become another foreign bank to pack up its business in Pakistan.

Since the beginning of financial crisis in 2007, many foreign banks have either left or curtailed their business in Pakistan. A leading example is Citibank which has reduced the scope of its operations here.

“Meezan Bank Limited has entered into an agreement with HSBC Bank Middle East Limited (HBME), an indirect wholly owned subsidiary of HSBC Holdings plc, to acquire (through a process of amalgamation) HSBC’s banking business in Pakistan (HSBC Pakistan),” said Meezan Bank on Friday.

The amalgamation is expected to be completed in the second half of this year, and is subject to regulatory and other relevant approvals including the approval of direct shareholders of Meezan Bank and HMBE.

Most foreign banks operating in Pakistan are not doing real banking as they like to remain at a distance with the private sector. The foreign banks have been making profits but their entire income comes from investment into the government papers.

Local banks are also following the same path but they still have some room for the private sector as its credit off-take is about 12 to 15 per cent of their total placement of liquidity.

The HSBC Pakistan business has 10 branches and total assets of Rs48 billion as of Dec 31, 2013.

Meezan Bank said it will convert the operations of HSBC Pakistan into Islamic banking and ensure that customers continue to enjoy uninterrupted banking services.

As the economic growth during the last six years was much below the required growth rate, banks in Pakistan found it easy to finance governments facing acute shortage of revenue. This kind of banking eroded the possibility of private sector growth in the country.

Thousands of banks were closed around the world since the financial crisis, but Pakistani banks succeeded to survive mainly because their sole client was the government. The successive governments not only protected their money but kept them profitable while the banking industry world over was facing huge losses.

Meezan Bank said it has experience of acquiring a foreign bank and converting the operations into Islamic banking in 2002 when it bought banking operations of Societe Generale in Pakistan (SG Pakistan) through a transaction very similar to the one being contemplated. The SG Pakistan’s transaction was managed very professionally and seamlessly.

Islamic banking has been growing with rapid speed in Pakistan while two more banks are making effort to completely transform their conventional banks into the Islamic ones.

Meezan Bank currently operates 351 branches in 103 cities and it is the largest Islamic bank in the country.