BANKING SECTOR WITNESSES SIGNIFICANT EVENTS

ACQUISITION AND MERGERS ARE IN THE LIMELIGHT

AMANULLAH BASHAR
(feedback@pgeconomist.com)
Jan 3 - 9, 20
11

The financial sector, which is the blood line for any economy, and was quite vibrant and resilient despite all economic odds prevailing in the country, has initiated some significant moves to change the trend in the banking sector not only in Pakistan but elsewhere in the world.

One of such events recently taken place was the acquisition of CitiBank Pakistan's Housing Finance portfolio of Rs953 by Bankislami recently, an interesting proposition of conversion of interest based or conventional product into Shariah compliant housing product of BankIslami.

The process of conversion would be closely watched by the banking sector and its successful transition into Islamic Based Housing Finance is expected to open a series of such conversion of other products as well within the country and rest of the world where the interest free banking is carving a respectable place even in non-Muslim countries. It may be mentioned that last week Islamic Based Stock Index has started working in neighbouring India.

It would of course interesting development in the sense that how the experts of Islamic banking go for conversion of the Housing Finance portfolio of the CitiBank from interest based to Shariah compliant. For the first time a bank has acquired mortgage assets of another Bank. It is expected that this transaction will open door for other similar transactions enabling banks to acquire entire business or product lines.

The added significance of the transaction is that this is the first time an Islamic bank has acquired business of a conventional bank. The transaction will be viewed closely by Islamic banks and regulators around the world as globally Islamic banking industry is more liquid than their conventional counterparts, thereby creating an alternate route of deployment of liquidity and further accelerating the growth of the industry.

The acquisition will serve as a milestone for the Islamic banking industry in Pakistan and elsewhere. Further, the acquisition of the Housing portfolio is in line with BankIslami's growth strategy in this segment.

Earlier the bank raised up to 100 branches in less than three years which is a record in itself. Despite a general slow down in the banking industry, BankIslami has recorded CAGR of 72 per cent in the last two years alone making it one of the fastest growing banks in the country.

MERGER OF RBS AND FAYSAL BANK

The merger of Royal Bank of Scotland and Faysal Bank Limited was yet another noticeable event in the banking scenario that was given the final touch last week. Actually, the merger has been completed in record time, within three months of acquiring controlling interest. All RBS Pakistan branches have been converted and branded as Faysal Bank.

As a result of this acquisition, Faysal Bank has expanded footprints in the financial sector by increasing its network to over 200 branches, with combined business assets of over Rs250 billion, further strengthening its balance sheet and placing it amongst the top ten banks in Pakistan.

According to Naved A Khan, President & CEO Faysal Bank, 'this merger will enhance our geographical footprint, customer base and product suite. In addition, we will have multiple touch-points for customer convenience. Also critical to the integration process was the hard work and commitment of all employees. This merger results in potentially greater career and development opportunities for employees of the combined entity.'

Faysal Bank's strategic plan envisages sustained optimal growth, which will be fast tracked with this merger. This strategy will be augmented in 2011 with several planned branch openings and new product offerings.

It may be recalled that Faysal Bank Limited was incorporated in Pakistan on October 3, 1994, as a public limited company under the Companies Ordinance, 1984. Faysal Bank's shares are listed on the Karachi, Lahore and Islamabad stock exchanges. Faysal Bank is engaged in consumer, commercial, corporate and Islamic banking activities across Pakistan. The Pakistan Credit Rating Agency Limited (PACRA) and JCR-VIS Credit Rating Company Limited have determined the Bank's long-term rating as 'AA' and short term rating as 'A1+'. The majority share holding of Faysal Bank is held by Ithmaar Bank B.S.C.

This acquisition will expand Faysal Bank's footprint to over 200 branches, with combined business assets of over Rs250 billion, further strengthening its balance sheet and placing it amongst the top ten banks in Pakistan. Our ambition is to provide par excellence service for our customers while expanding our product suite to meet their financial needs. This strategic acquisition accelerates our ability to provide a higher value proposition for our valued current and potential customers.

MCB EXPANDING SERVICES TO FACILITATE REMITTANCES FROM UAE

Meanwhile, MCB Bank Limited (MCB) has initiated a new remittance service to Pakistan from United Arab Emirates (UAE) by signing an agreement with UAE based Emirates India International Exchange (EIIE) - a leading exchange house in the region.

This service further strengthens the legal means of remittances to Pakistan, and EIIE's money transfer services across its 16-branch network in the UAE would be available for MCB's remittance services.

The new tie-up, set up with the support of the Bank's Transaction Banking Division, will help Pakistani expatriates remit money from EIIE free of cost. The company will undertake diverse services including issuance of Telegraphic Transfers from the UAE and MCB will deliver payments in accounts, as well as instant cash, in Pakistan.

Commenting on the benefits of the new agreement, MCB President M. U.A. Usmani underlined the fact that that in today's environment, customers require rapid and efficient money transfers. The association with Emirates India International Exchange, a top ranked payment services company in the region, would facilitate meeting such requirements.

This agreement is a part of our strategy to offer a broad span of latest financial services to our customers, and we have full confidence in EIIE's experience and technical services quality. This will further strengthen MCB as it moves forward to affirm its leading position in Pakistan's banking sector.

SCOPE OF PAYMENT SYSTEM INFRASTRUCTURE

The scope of payment systems infrastructure in the country was tremendously increasing as a total of 99 automated teller machines (ATMs) were added to the e-banking infrastructure bringing the total number of ATMs to 4,562 in the country.

According to latest data, over 60 bank branches have been upgraded to Real Time Online Branches (RTOBs) while the number of plastic cards (i.e. ATM, Debit and Credit Cards) also increased by 5.23 per cent compared to the previous quarter.

Following increase in ATMS, the value of ATM transactions increased by about 5 per cent to Rs262,524 million while maintaining the number of transactions at the level of the previous quarter; thus increasing the average value per transaction to Rs8,486 compared to Rs8,037 in the previous quarter. It said the contribution of other modes of e-banking is also on the rise despite comparatively insignificant numbers and aggregates value of transactions and added that the utility bills payments through available modes (ATMs, internet, mobiles etc) of e-banking transactions are also growing.

The number of cross-border transactions increased by 154 per cent in volume and 19 per cent in value during the quarter under review. The large value payments settled through Pakistan Real-time Interbank Settlement Mechanism (PRISM), however, decreased by 6.51 per cent in volume and 11.35 per cent in value of transactions in comparison to the previous quarter. The major portion of PRISM transactions, in terms of value, consisted of securities settlements, which accounted for 47 per cent of the total transactions followed by Interbank Funds Transfers (37 per cent) and Settlement of Retail Cheques Clearing (16 per cent), the report said.

The volume and value of paper-based retail payments during the quarter under review were 82.959 million and Rs35.60 trillion showing a decrease of 9.44 per cent in number of transactions and 12.18 per cent in value of transactions compared to the previous quarter. The contribution of paper based payments in total retail payment transactions was 61.20 per cent in term of volume and 88.45 per cent in term of value.

The volume and value of e-banking transactions during the quarter reached 52.58 million and Rs4.7 trillion respectively. Its contribution to total retail payment transactions was 38.80 per cent in term of volume and 11.55 per cent in term of value. It may be mentioned here that safe, efficient and reliable payment systems are vital part and backbone of financial infrastructure of a country, which provide the essential base for financial stability.