KARACHI, Jan 3: The year 2006 witnessed the highest ever activities in the banking and financial sector as it went through series of mergers and acquisitions while three major acquisitions were still in pipeline.

These rapid mergers and acquisitions were not in isolation. Foreign investors took the major shares as they bought several major financial entities.

The year saw some big European banking giants exploring opportunities for acquiring Pakistani banks apparently because of robust development in the banking sector and highest profits compared to any other sectors of the economy.

During the first six months of the current fiscal 2006-07, Rupali Bank merged with Arif Habib Rupali Bank and Atlas Investment Bank into Atlas Bank, mergers of Habib A.G Zurich and Metropolitan Bank, First Allied Modaraba and Allied Bank Ltd were also completed during the year.

Union Bank was solely acquired by the Standard Chartered Bank the same year.

Other major financial sector decisions are still in pipeline but they were almost finalised to acquire the entities. The biggest hit was the acquisition of PICIC by NIB Bank. The agreement is yet to be completed but the majority shareholders already announced their agreement with the NIB.

Buying of Prime Commercial Bank was another major incident in the banking sector. ABN Amro is in process of due-diligence. Acquisition of Crescent Commercial Bank by Samba Financial Group of Saudi Arabia is also expected.

The buy and sell in the banking sector produced two-prong development. Analysts said the influence and shares of foreign banks are growing while the small banks are closing their business by either merger or selling the entire operations.

The State Bank’s condition to increase the paid-up capital up to Rs6 billion by 2009 was another major reason for small banks to get better prices and sell their business. On the other hand, large banks have developed much more influence to attract business, leaving small banks to serve only petty clients which do earn them hefty profits.

For the last three years large banks have been earning record profits and they have the major shares compared to small banks of which profits remained between 30 to 35 per cent.

Pakistan’s banking sector is highly concentrated as top six banks represents 63 per cent of the total banking deposits (based on September 2006). Moreover, in terms of profitability these banks share is 64 per cent.“This trend will further increase as the large banks share is increasing and small banks are bent upon to sell their operations for better available prices,” said a banker.

Analysts believe the year 2007 would bring consolidation in the banking sector and large banks would increase their shares in both the deposits and profits.