KARACHI, Sept 25: National Development Leasing Corporation Limited (NDLC) announced on Thursday that its Scheme of Amalgamation with International Finance Investment and Commerce Bank Limited (IFICL) had been sanctioned by the State Bank of Pakistan.

The amalgamation of the country’s first leasing company and the Pakistani operations of the Bangladesh bank, would go to create ‘NDLC-IFIC Bank Limited’. Shareholders in NDLC had approved the scheme of amalgamation in an Extraordinary General Meeting held earlier on May 22 this year.

NDLC’s company secretary S. Khaleeq Ahmed said on Thursday: “The Sanction Order (of SBP) provides that the Scheme shall be effective within 30 days of the Order i.e. latest by October 16, 2003” and he added: “We are therefore required to complete all formalities for the amalgamation latest by October 16, 2003”.

According to the scheme of amalgamation approved by the NDLC shareholders in May, the swap ratio was determined as 1.176 shares of Rs10 each in the merged bank: NDLC-IFIC Bank Limited, for a share of Rs 5 each held in NDLC.

But interestingly, the current stock market boom has seen the market price of NDLC stock climbing by nearly 150 per cent from around Rs8 in May, to Rs19.20 on Thursday. NDLC had also recorded impressive financial performance in the nine months ended March 31, 2003, posting after-tax profit at Rs35.61 million, reflecting 62 per cent growth from after-tax profit amounting to Rs22.28 million in the corresponding period of the previous year. By contrast, for all of the previous financial year (2002), the company had posted loss of Rs82 million, which it said was the first deficit in the 18 years history of the company.

There could be some serious discussion between the shareholders and the company over the question of swap ratio: whether or not that ought to be revised, given the improved break-up value and a phenomenal increase in share price. In the bank to be created, 80 per cent of the 110 million shares of Rs10 each, would be held by NDLC shareholders and the remaining 20 per cent would go to stakeholders in IFIC.

The merger of NDLC and IFIC is one of the many amalgamations of smaller foreign banks into larger local banks. Government has been attempting to promote consolidation in the financial sector which is why in the previous Finance Bill, several incentives had been proposed for mergers and amalgamations.

Corporate regulators (SECP and SBP) have been exhorting smaller banks to go for mergers to meet capital requirements, for to be lean and thin is no longer considered to be of value.

Most tiny foreign banks have disappeared by merging operations into larger ones: Doha Bank, Bank of Ceylon, Mashreq Bank, Bank of America and Emirates Bank, being some that come immediately to mind.

“Importantly, smaller banks, which used to make money mainly on arbitrage have found it difficult to survive in the current monetary policy that has improved with better economic indicators,” explained one analyst.

Citibank, ABN Amro and Standard Chartered Grindlays may perhaps be the three mightiest among foreign banks that have managed to weather the winds of change.