THE MERGERS &

AMALGAMTIONS
In Pakistans Banking Sector

The case provides an overview and

the short-term effect of the decision
of merging of RBS in Faysal Bank
here, and amalgamation of Al
Baraqa and Emirates Global in
Pakistan.

By: Jawwad Jaskani

The case provides an overview and the short-
term effect of the decision of merging of RBS
with Faysal Bank here in Pakistan, with a brief
detail of the amalgamation between Al Baraka
Islamic Bank Pakistan (AIBP) and Emirates
Global Pakistan, into a single new bank Al
Baraka Bank Pakistan Limited. Starting with the
introduction of the banks, their backgrounds,
the scope of the operations and profitability,
and then moves on to the advantages and
reasons for acquiring.
The Royal Bank of Scotland is one of the retail
banking subsidiaries of the Royal Bank of
Scotland Group, and together with some other
local banks, provides branch banking facilities
throughout the British Isles in addition to
having a global reach in many other countries.
When RBS entered Pakistan it developed local
knowledge and combined it with global
expertise and financial strength and strived to
deliver value to Pakistani customer. RBS had
offices in all major cities including Karachi,
Lahore, Islamabad and Rawalpindi and a
significant presence in the Pakistani market. It
claimed to focus on providing personal and
business banking services as well as building
extensive relationships with corporate and
financial institutions.
RBS Pakistan combined local expertise, an
extensive network of global contacts and a
worldwide distribution platform to deliver a
full spectrum of products and services which
included
Financial markets
Transaction banking
Financial advisory
Mergers and acquisitions
Shariah- compliant products
Faysal bank limited started its operations in
Pakistan on October 3, 1994 as a public limited
company under the companys ordinance 1984.
Currently Faysal bank has its shares listed on
Karachi, Lahore and Islamabad stock exchange
and is actively handling its operations in these
cities. It is engaged in customer, commercial,
corporate and Islamic banking activities. The
bank has a bright future and has a long term
credit rating of AA and a short term rating as
A1+ as determined by Pakistan credit rating
agency limited (PACRA) and JCR-VIS credit
rating company. Faysal bank strives to achieve
excellence in whatever they do and are
working towards achieving leadership in
providing financial services in chosen markets
through innovation.
Presently Faysal bank is providing services such
as:
Deposit products
Consumer lending
Retail services
Corporate and banking services
Islamic banking
Bancassurrance
Priority banking
Merged In
RBS had a merger with the Dutch bank ABN
Amro a few years back, but that too did not
help much in supporting and firming the shaky
financial condition of the bank, and thus the
subsequent downfall of the bank led to the
decision of the management at RBS to end their
operations in Asia by withdrawing their business
in the retail and commercial sectors. Earlier
the decision was to sell of RBS to the MCB Bank
of Pakistan for $87 million but it never got the
regulatory approval.
Later, Faysal bank limited took over the
controlling interests in the Pakistan operations
of Royal Bank of Scotland Limited (RBS
Pakistan), from the RBS Group for Euro 41
million which culminates in a share price of
2.5. In local currency this amount stands at
4.298 billion. This acquisition has extended and
rooted Faysal Banks hold to over 200 branches,
with combined business assets of over 260
billion, strengthening its balance sheet and
improving its position amongst its competitor in
the market. The merger of RBS Pakistan into
Faysal Bank Limited was completed by January,
2011 thereby achieving a significant milestone
in its growth strategy. RBS had 1,717,981,931
ordinary shares listed on the Karachi stock
exchange, Lahore stock exchange and
Islamabad stock exchange which are now
owned by Faysal bank.
Analysis of Strategic Factors (SWOT):
Strengths:
Based on financial strength and superior
performance, Faysal Bank Limited has been
assigned the highest short term rating of A1+ (A
One Plus) and AA (Double A) for the long term
by JCR-VIS (credit rating Company). Also:
Better technology like Symbols,
implementation of Financial Oracle, HRMS.
Very attractive salary packages to
employees.
Heavy internal financing i.e. from heavily
growing deposits.
Attracted big corporations like SNGPL,
Attock Group of Companies, Zaver
Petroleum, etc.
Weaknesses:
Weak branch network across the country.
Attracting only upper and middle class
customers.
Low number of ATMs.
Market share is declining from new
competition.
Employees frustration due to excessive
work burden.
Opportunities:
It can capture agriculture market by
offering innovative agri finance products.
Impressive print and electronic media
campaign highlighting FBLs role in the
development of rural economy of Pakistan
can give it competitive edge over its
competitors.
Through re-branching, FBL can capture lot
of new customers.
Merger with Barclays or Bank of China or
RBS to become part of larger international
banking
Network and to increase the profit.
Threats:
Declining trend in banking sector, which
can affect it to large extent because of its
big Corporate customers which are few in
number.
Arrival of Barclays and Bank of China in
Pakistan, which can increase the
competition in
Banking sector.
Decreasing trend in Earning per share and
stock prices.
Moving of key employees, e.g. Corporate
Relationship Managers, which means
moving of
Corporate clients to other bank.
Motivation behind merger & the obvious
advantages:
According to the analysts there were two main
reasons behind this merger for the
management at Faysal Bank, first was to
increase its market share, and the second to
develop themselves as the providers of
premium banking products. Also the
motivation of becoming the 10 thbiggest bank of
the country and the obvious probability of
Faysal Bank getting larger than Bank Al Habib
and Askari Bank. Another reason was also that
the brand equity of the bank is quite large and
the brand itself, RBS is a plus point, as it is
globally well recognized. The acquisition also
AMALGAMATION OF AL BARAKA ISLAMIC BANK AND EMIRATES GLOBAL (PAKISTAN)
Al Baraka Bank (Pakistan) Limited (ABPL) is the
result of a merger between Al Baraka Islamic
Bank Pakistan (AIBP), the branch operations of
Al Baraka Islamic Bank (AIB) Bahrain and
Emirates Global Islamic Bank (Pakistan). The
merged entity commenced operations on
November 1st 2010.
The merger, a first in the Islamic Banking
sector in Pakistan, positions ABPL to play an
important role in further growing an industry
which has witnessed tremendous growth over
the last 5 years.
KARACHI: Emirates Global Islamic Bank
(EGIBL) and Al Baraka Islamic Bank will soon
merge into one single bank. This was
announced by the Chief Executive Officer of
helped Faysal bank in acquiring the some of the
best human capital in Pakistan in terms of
banking talent.
EGIBL, Syed Tariq Husain, at a press briefing
here on Tuesday
An extraordinary general meeting of
shareholders held on Tuesday, approved the
scheme of amalgamation, declared Husain.
The new institution will be called Al Baraka
Bank (Pakistan) Limited. With a combined asset
base of more than $582 million, the bank will
boast 89 branches across 40 cities and towns.
EGIBL will contribute about $175 million to the
asset base and 60 branches to the network.
Al Baraka will be the majority stakeholder in
the agreement, but will merge into Emirates
Global because the latter is a listed company in
Pakistan, while Al Baraka is currently a branch
of the international Al Baraka Banking Group.
It was made clear that all employees of EGIBL
will be retained, but the positions of senior
level management have not been finalised as
yet.
Officials from both banks have expressed hope
that the process will be completed by the end
of August as due diligence procedures on legal
and financial conditions have already been
completed. The merger will be formalised as
soon as the State Bank of Pakistan (SBP) issues
a formal approval.
Talks between the two banks were initiated
last year and all stakeholders were taken on
board before the decision was made.
The merged entity will be better positioned to
comply with SBPs regulations concerning
minimum capital requirements as well as the
condition that 20 per cent of all new branches
must be established in rural areas.
Given the international presence of the Al
Baraka Banking Group, the merger will also
open up international avenues, hoped Husain.
Growth in the banking sector has slowed in the
past two fiscal years and smaller banks have
suffered significantly due to non-performing
loans and shrinkage in consumer banking.
Islamic banks had hoped to capture about 12
per cent of the total banking sector in Pakistan
by 2012 but now that seems like a distant
target. Islamic banks will probably manage to
capture a share of about 9 to 10 per cent by
2012 if they continue to grow at twice the pace
of conventional banks like they have in recent
months, remarked Tariq Husain.
In response to a question, Husain speculated
that SBP would most likely maintain the
discount rate in the upcoming monetary policy
decision. He added no one foresees rates
coming down because inflation has not come
down. Government is taking up liquidity that
would otherwise have been available to the
private sector.
Commenting on the impact of political and
economic instability on banking sector, he said
that smaller banks had lagged behind the big
five in past months but upcoming results would
show that consolidation is underway and
balance sheets are significantly healthier
compared to last year.
Published in The Express Tribune, July 28 , th
2010.
LAHORE (PR) - Al Baraka Islamic Bank BSC (C)
(Bahrain), wholly owned subsidiary of AL
Baraka Banking Group (ABG) (Bahrain), and
Emirates Global Islamic Bank announced their
intention to merge the branches of Al Baraka
Islamic Bank in Pakistan and Emirates Global
Thlamic Bank Pakistan under the name of Al
Baraka Bank Pakistan.
The merger will lead to the emergence of a
bank that has assets in excess of $582 million
and a network of 90 branches covering 35 cities
and towns in Pakistan. The process of obtaining
the necessary approvals from the regulatory
authorities in Bahrain and Pakistan is under
way.
On this occasion, Sheikh Saleh Abdullah Kamel,
Chairman of Al Baraka Banking Group (ABG),
said that the merger between the two banks
reflects the groups strategy to expand in the
Pakistani market as a part of its global
strategies to strengthen its presence and
operations in promising Islamic markets. The
said merger will create a high value-addition
not just for the merged bank but also for the
banking and financial market in Pakistan which
is considered to be one of the most important
markets in the Muslim world.
Published at The Nation April 27, 2010
CONCLUSION
In both the cases the banks were merged and
amalgamated due to the lack of customers and
alone they were unable to complete the SBP
requirements. Therefore they prefer to work
with other bank so that they have a better
position and to gain market share. Faysal Bank
take hold of RBS because that was an
international business subsidiary and had a
strong goodwill and market reputation and
therefore Faysal Bank became one of the top
10 banks in Pakistan.
On the other side Albaraka Islamic Bank and
Emirates Global had amalgamation to combine
their assets and expertise to operate
successfully in Pakistan.