Research Analyst
Apr 20 - 26, 2009

A consortium led by Royal Bank of Scotland Limited (RBS) acquired ABN AMRO Bank Ltd (AABPL) in October 2007 while it renamed AABPL with RBS on 1st August 2008.

In Pakistan, RBS has a network of 79 branches, including 3 Islamic banking branches. The bank is mainly engaged in retail banking, corporate banking, and treasury related activities. RBS's assets stand at Rs 117.6 billion and it has about 5,000 employees. According to the PACRA, the bank's short term credit rating is (A1+) and long term credit rating is (AA).


During FY08, the deposits of the bank declined by Rs11.186 bn from the level in December 07 while advances increased by Rs3.755bn. The advances are largely concentrated in the textile, chemical and pharmaceuticals and food and allied sectors. Until December 2008, inter bank borrowings and ERF increased by Rs. 2.28 bn over Dec 2007.

During the year ended on December 2008, adequate provisioning against advances portfolio had been created in accordance with the guidelines of State Bank of Pakistan. Specific loan losses amounting to Rs3.602 bn against non-performing loans were made in current year as compared to Rs 3.635 bn provisions made in year ended December 31, 2007.

The loan losses for the year 2008 included the benefit of Forced Sale Value benefit amounting to Rs.40 million as allowed by the State Bank of Pakistan for commercial banking and SME segments.

During the year 2008, revenue increased by Rs1.315 bn over the last year although with a 384 mn decrease in net interest margin. The decrease in interest margin is reflective of pressures on spreads resulting from the high cost of deposits as well as the propensity of depositors to shift to longer tenor fixed deposits. Also during the year ended December 2008, inter bank borrowing costs rose sharply owing to liquidity tightening. Utilizing the extensive branch network with additional volumes of non-fund based services handled by the bank, non-fund based income fetched additional revenues of Rs574 million. Increase in derivative income of Rs926 million contributed largely in revenue growth. In line with the staff cost increase during the year 2008 and impact of re-branding cost, administration expenses rose by 2.6% to Rs726.990 million over the last year.

INDICATORS 2008 2007
Loss/ PBT (559) (1,368)
Loss/ PAT (518) (1,565)
Reserves (8,904) (8,385)
Deposits 79,103 90,287
Advances 67,910 64,155
Investments 18,983 16,444
Total assets 108,092 107,536
Loss/ EPS Rs (0.38) (1.16)
Source: RBS


The global financial crisis, brewing since the summer of 2007, started to show its negative effects by the second half of 2007 and throughout 2008. During this period, the negative fallout on Pakistan was compounded by political changeover and geo-political situation. The unprecedented commodities price hike led to sharp deterioration in the macro economic fundamentals necessitating recourse to IMF standby arrangement loan. The stabilization measures taken by the Government included removal of food and energy subsidies, introduction of greater fiscal discipline, a tighter monetary stance, imposition of regulatory duties on a range of non-essential items, and tightening of FX market regulations.

The crisis on the external and inflationary front forced the SBP to raise the discount rate to 15 percent last year. As a result, there has been a sharp slowdown in demand for consumer financing as well as credit demand by corporate sector. These measures have led to subsiding the inflationary conditions and expectations and improvement in foreign exchange reserves of the country.

In the year 2008, SBP introduced policy measures to support the capital position of the banks by allowing benefit of Forced Sale Value (FSV) of collateral to the extent of 30% of pledged stocks and mortgaged commercial and residential properties for computing provisioning requirements.


The Royal Bank of Scotland has announced the worst financial loss. According to the bank, there are potential buyers who have expressed interest in its business. The potential buyers are from retail and commercial banking segments. Jahangir Siddique Company Ltd, Habib Bank Limited, and MCB Bank have expressed their interests in acquiring domestic operations of RBS in notices issued to the Karachi Stock Exchange. Reportedly, they have applied to the SBP to start due diligence of RBS Pakistan.

HBL with total assets of Rs717 bn and a network of 1,468 branches showed a profit of Rs10 bn in 2008. MCB's profit last year stood at Rs15bn. It has Rs443bn assets and around 1,040 branches. RBS has Rs108bn billion assets with around 79 branches. It incurred a loss of Rs517 million during last year.


RBS has announced its intention to explore new ownership for its businesses in Pakistan. Current capital constraints on the RBS group and the need for RBS to strike out reds from its balance sheet indicate that RBS is unable to provide the investment for the business and cater to consumers in Pakistan. The doubts about RBS failure were in the air when it started re-branding 79 branches of ABN AMRO in Pakistan amidst deteriorating economic and political situation. Right now, it is only logical for RBS to give up operations in Pakistan.