Former SBP Governor's emphasis was on the merger of small Pakistani banks established during early 1990s and to reduce the number of banks to 20.

Jan 15 - 21, 2007

The banking sector in Pakistan (as of 31st December, 2005) comprised 39 banks which include one co-operative bank (Punjab Provincial Co-operative Bank Ltd.), two specialized banks (Industrial Development Bank of Pakistan and Zarai Taraqqiati Bank), a dozen of foreign banks - big and small - one bank jointly owned by the Pakistani government and the Saudi investors (Saudi-Pak Commercial Bank Ltd.).

During the first tenure of Prime Minister Muhammad Nawaz Sharif in early 1990s, permission was given to about a dozen of small commercial banks with the minimum capital requirement of Rs 500 million.

During the tenure of the former State Bank of Pakistan (SBP) Governor, Dr Ishrat Husain, emphasis was on the merger of small Pakistani banks established during early 1990s and to reduce the number of banks to 20. To coerce the small Pakistani banks to merge, the minimum capital requirement has been raised by the SBP and these banks are now required to bring the paid up capital to Rs 6 billion by 2009.

The four major banks- National Bank of Pakistan, Habib Bank Ltd, United Bank Ltd. and M.C.B. Bank Ltd - currently hold about 55 per cent of the deposits of the banking sector. Their share in the 2005 pre-tax profit is over 59 per cent of that of the banking sector- virtually a monopolistic situation.

During the last seven years or so, the so-called "reforms" period, the focus of the SBP policy had been to kick the small business in the financial sector out of the market and to show the nominally paid employees hailing from the lower strata of society the doors of the banking institutions replacing them with the youth from the higher echelon of society with fabulous salaries and perks. In this connection, one can cite the instance of initially banning the functioning of the small money changers who were allowed in early 1990s to merely undertake purchase / sale of foreign currencies from to the public and replacing them with the large-sized exchange companies with the minimum paid-up capital of Rs100 million. However, the lobby of the small money changers asserted itself successfully and succeeded in continuing its business in one way or the other. The flaw in SBP policy in this regard can be gauged from the fact that on the one hand, there is a talk of reducing the number of banks while on the other hand, the sphere of the banking sector is being expanded by assigning some banking functions- relating to remittances etc. in foreign exchange sector to the exchange companies.

The lower cadre regular employees like peons, drivers, dispatch riders who had been able to draw salary of Rs 7000- Rs 10,000 after rendering services of two decades or above have been driven out by large-sized banks on the plea that these poor employees were getting much higher than their market value. The replacement is made through the contractors- so called out-sourcing- at the marginal salary of Rs 3000-4000. Can the executives imagine that how these retrenched employees will pull on within this meager payment? The other side of the picture is that the young graduates/post graduates are being hired at an unimaginable 6 digit salaries.

The position of the executives of the banks is altogether different. The Presidents of a few banks drew as under in 2005:

National Bank of Pakistan Rs 19.2 million, United Bank Ltd. Rs 24 million and Faysal Bank Ltd. over Rs 56 million. These hefty salaries are in addition to other perks including membership of costly clubs, cars and petrol etc.

The question is why does the SBP wish to create big banking entities when it has already proved vulnerable in the matter of policy enforcement before the 'cartel' of five major banks, four of which are now in the private sector. These banks have failed to accept SBP advice to reasonably raise the interest rates on deposits. SBP Governor has issued final warning in the previous month. Let's one hope for the good and keep the fingers crossed.

One important question is: "what is the harm if the small sized banks continue to operate side by side with the large-sized banks if they are giving good operating results? The eight small banks are likely to be affected by the SBP's command of "either increase capital or merge". We append a Table giving the performance of these banks during 2005:

Table: "A" Paid up capital as at end 2005/
after-tax return over assets for 2005




Askari Commercial Bank Ltd.

1.6 %


Bank Al-Habib Ltd.

1.7 %


My Bank Ltd.

1.8 %


Metropolitan Bank Ltd.

2.0 %


K.A.S.B Bank Ltd.

(-)1.6 %


Prime Commercial Bank Ltd.

1.1 %


Saudi-Pak Commercial Bank

0.1 %


Soneri Bank Ltd.

1.6 %


It will be seen from the above table that none of these banks will be able to increase the paid- up capital to Rs 6 billion by 2009. The after-tax profit on the equity earned in 2005 by 5 out of these 8 banks fairly compares with the three large sized banks which is as follows:

Habib Bank Ltd. 1.8 per cent, United Bank Ltd. 1.9 per cent and Allied Bank Ltd. 1.7 per cent. The after-tax return on assets earned by National Bank of Pakistan and MCB Bank Ltd is exceptionally higher @ 2.2 per cent and 3.2 per cent, respectively. But it should also be remembered that these large banks are fattening their bellies at the cost of the depositors as they are paying minimal interest on the deposits.


SR. #






Merger of Bank of Ceylon-Pakistan Operations with and into Dawood Bank Limited




Acquisition of Bolan Bank by Iqbal Ali Mohammed Group




Merger of Credit-Agricole Indosuez-Pakistan Operations with NDLC-IFIC Bank




Merger of Trust Investment Bank Ltd, Fidelity Investment Bank Ltd. and Doha Bank with and into Trust Commercial Bank Ltd




Merger of Trust Commercial Bank with and into Crescent Commercial Bank Limited




Merger of Ibrahim Leasing Limited with Allied Bank Limited




Acquisition of majority shares of Dawood Bank Limited by Atlas Group




Merger of Atlas Investment Bank with and into Atlas Bank Limited (Formerly Dawood Bank Limited)




Merger of Rupali Bank with and into Arif Habib Rupali Bank Limited




Merger of First Allied Modarba Limited with and into Allied Bank Limited




Acquisition of majority shares of Union Bank Limited by Standard Chartered Bank (Pakistan) Limited


The position of Saudi-Pak Commercial Bank is no doubt precarious and hence it can reasonably be asked to merge while Prime Bank Ltd could be encouraged by the SBP to improve performance.

Over the last 7 years or so, SBP claims to have brought much improvement in its surveillance system: the central bank now operates both on-site and off-site surveillance. So the SBP should endeavour to coerce the small banks to bring improvement in their performance through fortified surveillance coupled with technical guidance instead of coercing them to become a part of banking monopoly by merging.

Another question arises is: Why did the government and the SBP allow the formation of the smaller banks in early 1990s with paltry capital. Now asking them to merge would be un-ethical and immoral unless any bank is heading towards bankruptcy.

The response to the SBP's directive to the small banks to merge has so far been negative as there has not been a single case of merger of the small banks. These banks are rather endeavouring to raise their paid up capital by issuing bonus/ right shares. The owners are rather handicapped in this context. Naturally, they can issue fresh shares (right shares/ or general issue) to the extent of 49 per cent as they have to hold 51 per cent shares themselves to keep control on the affairs of the bank.

There have, however, been quite a few cases of the mergers and acquisitions-for reasons other than the SBP policy directives- during the last few years. The details are as under:

[a] After closure of business of the Bank of Credit and Commerce International (BCCI) by the British authorities, Pakistan was under pressure to close down the branches of the bank operating in Pakistan. The pressure was effectively resisted by the then SBP authorities. The branches were initially acquired by Habib Bank Ltd. by incorporating a subsidiary in the name of Habib Credit and Exchange Bank Ltd. [HCEB] and later sold to an Arab investor/ renamed Al-Falah Bank Ltd.

[b] A branch of a Bangladeshi bank- IFIC Bank-operating in Karachi was acquired by and merged in National Development Leasing Corporation Ltd. (NDLC) which was the subsidiary of National Development Finance Corporation (NDFC). A branch of a French Bank in Karachi- Credit Agricole Indo-suez was also acquired by and merged in the NDLC. After these mergers, the NDLC has been renamed as N.I.B Bank Ltd. The NIB Bank has also been purchased by a foreign bank.

[c] The branches of Bank of America operating in Karachi/Lahore and Islamabad and a branch of a French bank operating in Karachi-Societe Generale the French and International Bank and the branches of the Emirates International Bank operating in Pakistan were acquired by and merged in Union Bank Ltd.

[d] The branches of ANZ Grindlays Bank Plc operating in Pakistan were acquired by and merged in the Standard Chartered Bank.

[e] The Schon Bank Ltd. established in early 1990s was initially sold to a Middle Eastern investor but was finally acquired by the Pakistan Industrial Credit and Investment Corporation (PICIC) and renamed as PICIC Commercial Bank Ltd. While the process of merger of PICIC and PICIC Commercial Bank Ltd. was under process, it is reported that NIB Bank has also been purchased by a foreign bank.

[f] Union Bank Ltd. has since been purchased by the Standard Chartered Bank and the process of merger is under way.

[g] A branch of Bank of Ceylon operating in Karachi has been acquired by Dawood Bank Ltd.

[h] Metropolitan Bank Ltd. has recently acquired the branches of Habib Bank A.G. Zurich operating in Pakistan and the two banks have since been merged.

[j] A branch of a Bangladeshi Bank "Rupali Bank Ltd." has since been acquired by Arif Habib group and the bank has been renamed as "Arif Habib Rupali Bank Ltd".

The NDFC and Mehran Bank Ltd. were merged in National Bank of Pakistan after they had reached the bankruptcy.

It will be seen from the above details that the acquisitions/mergers in the banking sector can be classified in 3 categories: (i) acquisitions by the Pakistani banks of the branches of foreign banks, (ii) acquisition of Pakistani banks by the foreign investors and (iii) merger of Pakistani banks with the domestic banks.

The acquisitions/mergers falling under category (i) are welcome because it reduces the burden of remittances of profits on our balance of payments while expertise is available in the country for running these institutions.

The sale of Pakistani banks to the foreigners e.g. internationalization of the domestic assets is without any justification because it adds to the country's foreign exchange liability on permanent basis on account of remittance of profits/dividends and in the currently deteriorating situation of our external sector, it may become unmanageable in not too distant a future if we may go on internationalizing the national silver, including banks.

The third category of acquisitions/mergers (mergers of NDFC/ Mehran Bank Ltd. in National Bank of Pakistan) is tantamount to nothing else than putting the high profile white collar crimes under the rug as during the last half a century or so- and more particularly during the last seven years- the country has lost the capability of catching hold of and punishing the culprits.


'Standard Chartered Bank's 140 years presence in Pakistan, coupled with the substantial investment in Union Bank is evidence of the bank's commitment to Pakistan and confidence in the market and its customers". This was stated by Badar Kazmi, Chief Executive Officer, Standard Chartered Bank (Pakistan) Limited (SCBPL), while unveiling a re-branded branch at Khayaban-e-Hafiz, Defence Housing Society Karachi.

Following the successful completion of its legal amalgamation with Union Bank on 30 December 2006, Standard Chartered Bank has become the 5th largest bank in Pakistan

doubling its market share. The legal entity, which will be called Standard Chartered Bank (Pakistan) Limited, is incorporated in Pakistan as a subsidiary of Standard Chartered PLC.

After re-branding of 65 Union Bank branches overnight, Standard Chartered now has 115 branches in 22 major cities in Pakistan and is the largest and fastest growing international bank in the country. "Today Standard Chartered and Union Bank is "One Bank", said Badar Kazmi.

Also present at the launch, Mike DeNoma, Group Executive Director Standard Chartered Bank said, "The combined Bank will be a key player in contributing towards the economic - growth and development of Pakistan. We aim to be true to our vision of becoming "The Best

Locally Embedded International Bank, by delivering to our customers better products and services and, in the process, ensuring the development and professional growth of all those who are working for us."

Although the legal status and name of the bank in Pakistan has changed there will be no change to the Standard Chartered brand, former Union Bank branches have started displaying the Standard Chartered brand.

In September, Standard Chartered PLC had announced that its subsidiary company, Standard Chartered Bank (Pakistan) Limited, has completed the acquisition of a 95.37 per cent interest in Union Bank Limited for US$487 million (Pak. Rs. 30 billion).