KARACHI: International Commercial Bank (ICB) of South Sudan, an African lender founded in 2011, has expressed interest in investing in Silkbank Ltd, a troubled entity facing undercapitalisation.

One of the smallest listed lenders, Silkbank told shareholders on Thursday ICB has expressed interest in subscribing to its shares “up to the extent of 50 million euros”. In rupee terms, the size of the potential investment amounts to Rs15.7 billion. In contrast, the total value of the bank is a little less than Rs10.1bn on the stock exchange.

Silkbank has been making losses for many years. Its accumulated losses amounted to Rs20.27bn at the end of 2020, the latest period for which the bank has published its financial accounts.

The bank is in desperate need of new capital to meet regulatory requirements. Its capital stood at Rs3.16bn against the prescribed minimum capital requirement of Rs10bn at the end of 2020.

Similarly, its capital adequacy ratio was -4.45pc against the prescribed level of 11.5pc on Dec 31, 2020.

Speaking to Dawn, an analyst with a development finance institution said the foreign bank will likely invest in newly issued shares — as opposed to the existing shares — at a predetermined price. As a result, the shareholding of the existing stakeholders will get diluted, he said while requesting that he not be identified owing to his company’s policy on making public comments about ongoing deals.

“There won’t be any tender offer to minority shareholders since the investment will materialise through new shares only,” he said, adding that majority shareholders will sign off on the investment scheme in an extraordinary general meeting.

The major shareholders of Silkbank are Arif Habib Corporation Ltd (28.23pc), former finance minister Shaukat Tarin (11.55pc), International Finance Corporation (7.74pc) and Zulqarnain Nawaz Chattha (7.75pc).

Last year, a property development company with links to former Punjab minister Aleem Khan also expressed interest in acquiring the bank. But it withdrew from the potential deal citing a change in its business priorities.

Silkbank has also been facing asset quality issues for some time. Its coverage ratio — which is the reserved allowance for loan losses divided by the total amount of non-performing loans — was already “very low” and may have further deteriorated given the considerable increase in interest rates since 2020.

It posted a net loss of Rs6.57bn in 2020 versus a net loss Rs3.95bn in the preceding year.

Silkbank will formally pursue the potential investment by holding discussions with ICB to finalise the “terms and conditions and documentation,” it said.

Published in Dawn, April 7th, 2023