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Two more banks join race for HSBC

April 20, 2012


While the HSBC acquisition drive does display the good health of local banks, it will also erode the confidence of other foreign banks operating in Pakistan. - File photo


KARACHI: Two more banks have joined the queue to buy HSBC Pakistan operations reflecting the good health of local banks despite ongoing global financial crisis.

Banking sources said that Habib Bank and Silkbank had approached the State Bank to allow due diligence of HSBC. Earlier similar move was made by MCB Bank and KASB Finance taking the number of interested parties to four.

This is amazing for many bankers that Hongkong and Shanghai Banking Corporation (HSBC), which is one of the largest global banks, is in difficult situation while Pakistani banks find it profitable to make more investment and enhance their capacity.

The HSBC is making effort to shorten its global operations for improving its health.

Banking sources said the State Bank had yet not granted permission to any interested party for conducting due diligence of HSBC.

“Habib Bank and MCB Bank could be serious candidates for buying of HSBC Pakistan operations as both have strong balance sheets with high profits,” said a senior banker.

Banking sources said the United Bank, which is also interested in HSBC, had yet not approached the State Bank for due diligence.

The HBSC move to quit Pakistan could weaken the confidence of other foreign banks earning meager profits in Pakistan as the five big local banks pocketed more than 84 per cent of entire banking industry profit in the last year.

A senior Pakistani banker said the HSBC decision of leaving the country was because of two reasons. Firstly, the bank was in the process of restructuring its global operations in a bid to minimise the impact of global financial crisis; secondly, Pakistani economy had been failed to emit positive signals for its recovery during the last four years.

He said the plunging foreign direct investment and rising outflows from equity market were disappointing for the foreign banks.

Furthermore the government policies practically harmed the banking industry. Being the largest borrower of the banking system the government has replaced the banking services through banking investment in government papers.

The financial crisis which began from United States in 2007 and spread all over the world particularly hit the European banking system, could hardly damaged the profitability of banks in Pakistan.

“The reason is clear that banks in Pakistan mobilised deposits through their large networks which the foreign banks cannot do with small presence while they pay negative return to depositors by keeping most profits with them,” said Mohammad Imran, a banking expert.

He said the foreign banks may return to Pakistan only when large global banks succeed to overcome the still prevailing financial crisis.

Foreign banks have been increasing their presence in the economies like India and China as both the offer better potential for growth and earnings.