MCB Plans Takeovers as Crisis Pushes Pakistan's Banks to Merge
MCB Bank Ltd., Pakistan's biggest by market value, plans to acquire domestic rivals as the nation's deepest economic crisis in a decade and tighter central bank rules push more lenders to consolidate.
``We have excess capital and we want to deploy it in assets that make sense for us,'' Chief Executive OfficerAtif Bajwa said in an interview in Karachi yesterday. He didn't say which banks he was evaluating. ``The advantage of looking to get something now is that asset prices are low.''
Central Bank Governor Shamshad Akhtar last month increased banks' capital requirements almost fourfold within five years to spur mergers and reduce risk. Bajwa will need to grapple with Asia's highest borrowing costs and a faltering economy that forced Pakistan to seek a $10 billion bailout to avoid default.
``There's going to be a domestic scenario of acquisitions and mergers in which MCB will be a prominent player,'' said Saad Bin Ahmed, head of research at Karachi-based Capital One Equities Ltd., who rates MCB's stock ``hold.'' ``MCB is part of a group which is financially very strong.''
MCB, Pakistan's most profitable bank, is controlled by the textile to cements group Nishat and sold a stake to Malaysia's biggest lender this year to bolster its capital.
Pakistan's banks will weather the global financial crisis because they have few investments in U.S. subprime mortgages that have roiled lenders worldwide, Bajwa said. The government may secure funds it needs from institutions including the International Monetary Fund to avert a collapse, he said.
``There's no hiding the fact we're in a precarious situation,'' said Bajwa, 49, who took the helm at MCB in June 2007 after two decades at Citigroup Inc. and ABN Amro Holding NV. ``We're quite optimistic that an inflow of funds will come through in good time to prevent default.''
Avoid Default
Pakistan may need as much as $10 billion from donors over the next two years to avoid defaulting on its debts, the IMF's Regional Director Mohsin Khan said in an interview in Dubai yesterday. Officials from Pakistan and the IMF are meeting in Dubai today to work out what can be done to help South Asia's second-largest economy.
Pakistan's economy has ``deteriorated significantly'' and growth may slow to a six-year low, the IMF said separately in a report released in Dubai yesterday.
MCB has the highest profit margin among domestic banks at 44 percent, compared with 30 percent for Standard Chartered Bank Pakistan Ltd. The lender's shares, which rose 79 percent in 2007, have declined 41 percent this year, in line with the biggest slump in Pakistan's equities in a decade.
Economic Turmoil
Pakistan's first civilian government since 1999 is facing economic turmoil after the rupee plunged to an all-time low, the current account deficit widened to a record, and inflation jumped to a 30-year high. The economic crisis mounted after the Pakistan Peoples Party-led government was paralyzed for almost six months because of political wrangling.
The decline in the benchmark Karachi Stock Exchange 100 index was halted on Aug. 28 when the bourse imposed trading curbs that prevented shares from falling below Aug. 27 prices. The restrictions are scheduled to be lifted on Oct. 27.
MCB sold shares worth $150 million to overseas investors in Oct. 2006 and became the first company from the South Asian nation to be traded on the London Stock Exchange. In May, MCB, part of Nishat, Pakistan's biggest business house, sold a 20 percent stake to Malaysia's Malayan Bank Bhd. for $926 million.
Lenders have to meet the central bank's Sept. 5 directive that they increase capital to 23 billion rupees ($300 million) by 2013. Previously, banks were required to raise their capital to 6 billion rupees by 2009. MCB Bank has about 8 billion rupees of capital, according to Capital One's Bin Ahmed.
Overseas Takeovers
The lender may also look to acquire banks in Indonesia and the Middle East, Bajwa said.
``The circumstances for a deal to happen may now be better than before because of the global crisis,'' he said. Still, ``We'll have to be more careful with our own capital and also look at the right price for any asset outside or locally.''
The bank's net income rose to 7.67 billion rupees for the six months ended June 30 from 7.66 billion rupees a year earlier. Revenue climbed 30 percent to 9.2 billion rupees.
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