Research Analyst, PAGE
Dec 21 - 27, 2009
RBS Pakistan is a leading international bank in Pakistan with a branch network of around 80 in 24 cities, of which 30 serve the affluent retail customer segment and three are Islamic banking branches, and has over 90 ATM's.
On Dec 31, 2008, RBS Pakistan had total assets of Rs108 billion. In August 2009, the MCB bank has acquired RBS Pakistan's 1.707 billion (1,707,107,891) ordinary shares for a cash price of Rs 4.22 per share.
ACQUISITION OF RBS PAKISTAN BY MCB
The MCB and RBS reached to an agreement, in principle, for sale of RBS bank's 99.37 percent holding to MCB. The shares of RBS got the lowest price as compared to previous deals made during the last six years in the country.
The MCB acquired 1.707 billion (1,707,107,891) ordinary shares for a cash price of Rs4.22 per share. MCB succeeded to strike the deal at the lowest price.
In the previous deals, the Union Bank was sold at a price of Rs 93 per share while Prime Bank was acquired by ABN AMRO (Now RBS Pakistan) at the rate of Rs54 per share. PICIC DFI got Rs78 per share, Saudi Pak Bank got Rs29.3 per share and MCB Bank sold its shares at a price of Rs 470 per share to Maybank, Malaysia.
The total consideration to be paid will be Rs 7.2 billion (US$ 87 million). In addition, the MCB would make a tender offer for the remaining 0.63 percent of ordinary shares not owned by the majority shareholder. As a result of the transaction, based on latest available pro forma numbers the total number of branches of combined MCB and acquired bank (RBS Pakistan) will increase to 1,139, the total consolidated deposits would increase to Rs413 billion and consolidated gross advances to Rs 324 billion.
During the nine months ended September 2009, the deposits of the bank declined by Rs. 6.267 billion because of high cost fixed deposits. The portfolio of advances (net of provisions) over the period has reduced by Rs. 17.2 billion. The bank has applied a conscious policy to improve its liquidity cushion while maintaining the balance sheet size within a comfortable zone.
Resultantly, there was no significant asset acquisition in the commercial segment combined with a conservative approach to the expansion of consumer product lines.
The borrowings of the bank decreased over the period by Rs. 2.2 billion on account of reduction in call borrowing and repo levels. The utilization of the Export Refinance Facility was decreased by Rs. 438 million during the period. An overall provisioning of Rs. 2.2 billion has been made against the advances portfolio compared with provisions of Rs. 1.5 billion made during the same period last year. The consumer sector loan losses continued to be under focus within the current period. Commercial advances which are impacted by economic indicators represented a significant component of the provisions made this year.
During the nine months of 2009, revenue decreased by Rs. 812 million over the corresponding period of last year. Interest margins remained under pressure due to the performance in the Retail and SME loans and more competitive cost of saving deposits and term deposits. The trading income increased over last year, while administration expenses were kept under control with a focus to reduce them further in line with the business activity.
After a deep global recession, the growth is gradually turning into positive territory, as wide ranging public intervention has supported demand and lowered uncertainty and systemic risk in financial markets. The recovery is expected to be slow, pointed towards improvement with support from public policies.
OPERATIONAL RESULTS (RS. IN '000)
INDICATORS NINE MONTHS SEP 2009 NINE MONTHS SEP 2008 loss/ PBT (1,501,776) 104,618 Loss/ PAT (1,432,603) (249,480) Admin Expenses (4,336,265) (4,642,246) Loss/ EPS Rs (0.86) (0.18) . SEP 2009 DEC 2008 Advances 50,643,256 67,910,051 Deposits 72,836,303 79,102,705 Investments 27,087,379 18,983,027 Total assets 8,665,827 10,054,704 Source: RBS
The key policy requirements remain to restore financial sector health, while maintaining supportive macroeconomic policies until the recovery is on a firm footing. Despite the adverse impact of global economic recession, Pakistan's economy is beginning to acquire firm direction. Some sectors after recovery are moving in to a sustainable growth path.
A sharp narrowing of the trade deficit, growing remittances and declining inflation are making the recovery of the macroeconomic fundamentals more resilient. The rebound in equity markets and the resumption of capital inflows with reduced risk aversion is providing further impetus. However, concerns regarding the financial flows of committed external support and continued pressure on oil prices pose challenges to a more broad based recovery.
The acquisition of RBS will be crucial in dovetailing human resource capacities as well as evolving product development and technology infrastructure. No doubt, this transaction will be beneficial to all stakeholders.