LAHORE: Silkbank Ltd’s consumer finance portfolio appears to be attracting a lot of interest from other banks these days with Bank Alfalah (BAFL) joining the race for the acquisition of SBL’s personal loans, running finance and credit card business on Monday.
Habib Bank Ltd (HBL) is already carrying out due diligence of SBL’s consumer portfolio for almost two weeks now.
Two separate bourse filings say BAFL has approached the Silkbank management for its concurrence to apply for permission from the State Bank of Pakistan to start due diligence.
The troubled Silkbank has unsuccessfully been trying to raise funds for improving its current Capital Adequacy Ratio (CAR) — also known as capital to risk-weighted assets ratio — of 4.16pc. The SBP, the regulator of the banking sector, requires the commercial banks to maintain CAR at 11pc.
The bank had begun negotiations with Fauji Foundation for the acquisition of its entire business earlier this year. But the talks collapsed after the Foundation ‘lost’ its interest in the acquisition weeks after it began due diligence.
Silkbank’s company secretary Faizul Hasan Hashmi had recently told Dawn that the Covid-19 outbreak had made it extremely difficult for the bank to recover its bad loans, which meant it needed to look for other sources to inject capital into the company to meet the mandatory CAR requirement.
CAR is a measure of how much capital a bank has available, reported as a percentage of a bank’s risk-weighted credit exposures. The purpose of CAR is to establish that the banks have enough capital in reserve to handle a certain amount of losses, before being at risk for becoming insolvent.
According to Silkbank’s nine-month unaudited accounts for the period covering January-September 2020, the bank’s CAR eroded significantly in nine months from 5.81pc at the end of 2019 to 4.16pc at the end of September 2020.
The erosion in CAR shows a significant increase in the bank’s infected loan portfolio in the nine-month period, forcing it to make provisions of Rs2.81bn against non-performing loans.
Published in Dawn, April 27th, 2021