INVESTMENT

BANKING
Merger of PICIC with NIB Page 1
Team Members:

01- Muhammad Ahsan SP16-MB-0007

0345-6164854
02- Abdullah Feroz SP16-MB-0010
0331-2465156

Submitted To: Mr. Ghouse M. Qadri

Submitted Date: 24th May 2017

Topic:

Merger of PICIC with NIB Page 2

 Merger of PICIC commercial Bank Limited with and
into NIB bank Limited.

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Table of Contents
Executive Summary................................................................................................................................... 4
History of PICIC Bank................................................................................................................................. 5
History of NIB Bank ................................................................................................................................... 7
Functions / Services .................................................................................................................................. 8
Investments........................................................................................................................................... 8
Deposits ................................................................................................................................................ 8
Advances ............................................................................................................................................... 9
Return on Assets ................................................................................................................................... 9
Return on Equity (ROE) ....................................................................................................................... 10
Return on Operating Assets ................................................................................................................ 11
Market Ratio ....................................................................................................................................... 11
Return on Deposits ............................................................................................................................. 12
Income over Expense Ratio ................................................................................................................. 12
MARGER OF PICIC INTO NIB BANK.......................................................................................................... 14
Introduction ..................................................................................................................................... 14
Discussion......................................................................................................................................... 14
Pre-Merger Strategy ........................................................................................................................ 14
Post-Merger Strategy....................................................................................................................... 14
Letter of Merger...................................................................................................................................... 14
Conclusion ............................................................................................................................................... 14

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EXECUTIVE SUMMARY:

This report relates to the legal merger of PICIC Commercial Bank and NIB Bank, following the
acquisition of Picic by NIB on June 28, 2007. The three institutions were merged on December
31, 2007.
NIB Bank acquired 63.36 per cent of the outstanding shares of Pakistan Industrial Credit &
Investment Corporation Ltd. (PICIC) at Rs.78/- per share.
The total transaction size is thus valued at Rs20.5 billion (US$ 342 million) 56 per cent of the
shares have been acquired from certain shareholders, and the remaining 7.36 per cent from a
tender offer to the general public.
This merger has resulted in NIB Bank becoming the seventh largest bank in the country in terms
of distribution network, now it has 170+ branches and 160 ATMs.
Total assets Rs 193.56 billion, NIB is the second most highly capitalized bank in the country with
paid up capital exceeding Rs 103 billion.
NIB organized itself around two specific principles: first, NIB will be a customer-centric
organization, which means that in whatever it does, the customer will always come first; and
second, there will be a strong focus on efficiency, which means that whatever NIB does, it will
do in the shortest possible time and at the lowest possible cost.

After the merger, the combined entities emerged as the leading asset management company in
the private sector, and provided a stable dividend stream to the bank.

NIB bank showed positive ratios in first 3 year while the bank profitability decreased in next 2
years and suffered from huge losses because of huge provisions against the obligations of PICIC.
Expenses were also increased in year 2007 and 2008 as well as net assets. An0ther reason of
facing losses in 2007 and 2008 is recession which affects the economy.

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HISTORY OF PICIC BANK:
PICIC Commercial Bank Limited was incorporated in 1993 as Schön Bank Limited and
commenced its business on 4 April 1994, with a paid-up capital of PKR 500 Million. In 1997, Al
Ahlia Portfolio Securities Company, Sultanate of Oman acquired the major shareholding and
changed the bank’s name to Gulf Commercial Bank Limited. Thereafter, in February 2001, the
bank’s management again changed when Pakistan Industrial Credit and Investment Corporation
acquired 60% controlling shares from Al-Ahlia and changed its name to PICIC Commercial Bank
in May 2001. Since acquisition, the bank performance has turned around and it is now among
the fastest growing private commercial banks in Pakistan. At the time of takeover by PICIC in
February 2001, the Bank had only 15 branches. Now it is the 6th largest bank in the country. On
December 31, 2007, the operations of PICIC Commercial Bank were merged with and into NIB
Bank Limited.

FUNCTIONS / SERVICES:
Services

 Commercial Financing
 Home Financing
 Car Financing
 industrial financing
 Tele-banking
 Mobile Banking
 Motorcycle Financing
 Islamic Banking
 Deposit & Saving Products

Internet banking
As technology advanced, PICIC Commercial Bank was set to use it and make the best of it. They
introduced for its customers, Online Banking solutions. With that customers could access their
accounts for deposits, withdrawals or inquiries from any branch nationwide.

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HISTORY OF NIB BANK:
NIB Bank is one of the largest foreign banks in Pakistan with an extensive branch network
spread over 52 cities across the country. It is also one of the largest corporate entities of the
country with a paid up capital of PKR 103 billion. The Bank continues to serve its customers for
all their financial and banking needs through its network of 170+ branches, all connected online
and 160 ATMs.

The Bank’s resolve to provide world-class financial products and services to the banking
population of Pakistan is driven by its key business units including Retail Banking, Commercial
Banking, Corporate and Investment Banking and Treasury Services.

The NIB Bank Limited Nordic Investment Bank (formerly NDLC-IFIC Bank Limited) was
incorporated in March 2003 as a publicly listed company. In October 2003, all assets and
liabilities and all rights and obligations of the former National Development Leasing Corporation
("NDLC") and Pakistan operations of IFIC Bangladesh were amalgamated with and into NIB
Bank. In April, 2004 the Pakistan operations of Credit Agricole Indosuez (the Global French
bank) were also amalgamated with and into NIB Bank.

In 2007 NIB Bank acquired the assets Pakistan Industrial Credit and Investment Corporation
(PICIC).

In June 2005, “Temasek Holdings of Singapore through Bugis Investments” (Mauritius) Pte
Limited acquired over 70 percent shares in the capital of NIB Bank.

NIB Bank is headquartered at the PNSC Building in Karachi, Pakistan. Six floors of this iconic
building serve as the nerve centre of the Bank’s footprint in Pakistan.

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FUNCTIONS / SERVICES:

Services

1) Retail Banking
a) Bank Accounts
b) Borrow
c) Protect
d) Home remittance
e) Treasury & capital market

2) Commercial Banking
a) Trade financing
b) Financing
c) SME product financing

3) Corporate Banking
a) Client Coverage
b) Investment Banking
c) Financial Institutions
d) Cash Management
e) Trade
f) Treasury and capital markets

4) Exclusive Banking
a) Client experience
b) Client engagement
c) Client Solutions

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INVESTMENTS

Investments are made by the banks in

order to secure themselves and earn
some profit from it. Generally these
investments are done in government
securities and shares. NIB bank
invested its money in the following
types of securities;
1. Market Treasury bill
2. Preference shares
3. Ordinary shares of listed
companies
4. Pakistan Investment
bonds
5. Term finance
certificates
6. Investments in Associates

The Market Treasury Bills and Pakistan Investment Bonds are held by the State Bank of Pakistan
which is eligible for rediscounting. The market treasury bills mature within 3 to 12 months
yielding 8% to 9% markup while the Pakistan
Investment Bonds matures in 7 to 8 years
carrying 8% of markup per annum.

DEPOSITS
1) DEMAND DEPOSITS
These deposits are further classified to;
a) Current deposits
b) Saving deposits
2. TIME DEPOSITS
These deposits are further classified to;
a) Notice term deposits
b) Fixed term deposits

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ADVANCES
Banks after accepting deposits disburse
the money in the form of loans to
generate the profit from. However
besides this function banks also perform
other different functions and disburse its
collected funds in different areas. These
areas come under the umbrella of the
advances. Advances of NIB Bank includes
disbursement of funds in the following
areas;
a) Loans, cash credits and running
finances (inside or outside Pakistan)
b) Net investments in finance and lease (inside or outside Pakistan) and;
c) Bills discounted and purchased (excluding treasury bills

RETURN ON ASSETS:
Return on Assets (ROA) = Profit after
Taxation / Average Total assets x 100
ROA is a measure of a
company's profitability, equal
to a fiscal year's earnings
divided by its total assets,
expressed as a percentage. This is
an important ratio for Companies
deciding whether or not to initiate a new
project. The basis of this ratio is that if a
company is going to start a project they

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expect to earn a return on it, ROA is the return they would receive. Simply put, if ROA is above
the rate that the company borrows at then the project should be accepted, if not then it is
rejected

RETURN ON EQUITY (ROE):

Return on Total Equity = Profit after taxation x

100Total Equity
Return on Equity measures the amount of Net
Income earned by utilizing each dollar of Total
common equity. It is the most important
of the “Bottom line” ratio. By this, we can
find out how much the shareholders are going
to get for their shares. This ratio indicates how
profitable a company is by comparing
its net income to its average
shareholders' equity. The return
on equity ratio (ROE) measures
how much the s h a r e h o l d e r s e a r n e d f o r t h e i r i n v e s t m e n t i n t h e
c o m p a n y . T h e h i g h e r t h e r a t i o percentage, the more efficient management is in
utilizing its equity base and the better return is to investors

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RETURN ON OPERATING ASSETS:
Return on Operating Assets = Profit after Taxation
x 100Operating assets
Whereas; Operating assets = Operating fixed
assets +
Cash and balances with treasury banks +Balances
with other banks.

MARKET RATIO:
Market Value Ratios relate an observable market value, the stock price, to book values
obtained from the firm's financial statements.
Earnings per Share= EPS: Earning per Share -
Profit after Taxation/ Number of shares
The portion of a company's profit
allocated to each outstanding share of
common stock. Earnings per share serve as an
indicator of a company's profitability.
Earnings p e r s h a r e a r e g e n e r a l l y
considered to be the single most
i m p o r t a n t v a r i a b l e i n determining a
share's price. It is also a major component used
to calculate the price-to-earnings valuation ratio.

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RETURN ON DEPOSITS:
This ratio shows how much return is earned in
relation to the total deposits. The formula is:
Return on Deposit Ratio = Profit after Taxation x
100/Total Deposits

INCOME OVER EXPENSE RATIO :

This ratio shows the relation between
income and expense of a company and
tells us that how many times a company or a
bank can cover its expenses. Ratio equal t o
1 tells us that the company is just
covering its expensing over and
a b o v e 1 i s countered as the company’s
profit. Higher the value above the 1 more
the financially sound is the company or the
bank. The formula is as under:
Income to expense ratio = total
income/total expenses

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MARGER OF PICIC INTO NIB BANK:

 Introduction

Institutionalization of corporate governance practices dominated policy agendas in both

developed and developing countries during the 1990s (Bari and Cheema, 2003). The need for
corporate governance implementation was also felt during mergers, takeovers and/or even
privatization process. Governments, stock exchanges and business associations across the
world are competing to produce corporate governance guidelines (Mir and Nishat, 2004). These
guidelines are thought to be of great significance for developing countries that are struggling
with improper legal systems.

Mergers and acquisitions, which are poorly executed or are not in line with the code of
corporate governance, pose a threat to the banking system in general and to the participating
institutions in particular. This report gives an overview of the merger of NIB and PICIC, which
followed in letter and spirit all the regulations and code of conduct of the Securities and
Exchange Commission of Pakistan (SECP) and is indeed a glaring example of compliance in
corporate governance.

 Discussion

NIB started as NDLC-IFIC Bank which was incorporated in March 2003 as a public limited
company. NIB started operation in October 2003 with a paid-up capital of Rs. 1.2 bn (PKR) with
amalgamation of National Development Leasing Corporation (NDLC) and of IFIC's Pakistan
operations and their assets and liabilities, and subsequently those of Credit Agricole Indosuez
Pakistan in April 2004. The Pakistan Industrial Credit and Investment Corporation (PICIC)
acquired the Gulf Commercial Bank Limited in early 2001. The bank was renamed as PICIC
Commercial Bank Limited. The Board of Directors of PICIC has been altered to reflect the
majority ownership and control by NIB Bank.

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In 2007, the bank and its operations were merged into NIB. NIB funded the acquisition through
a mixed offering of Rs. 18.6 bn (PKR) and a subordinated debt issue of Rs. 4 bn (PKR).

NIB's vision was to rank amongst the top five banks in Pakistan. Therefore, it acquired majority
shares of PICIC on June 28, 2007, through the acquisition of PICIC, NIB has also gained control of
PICIC Commercial Bank, PICIC Asset Management Company, PICIC Insurance Ltd., and PICIC
Exchange Company, allowing NIB to position itself as a dominant player in the financial sector
of Pakistan, covering the fields of commercial, retail, consumer, corporate and investment
banking asset management and insurance. Post-merger NIB's total assets increased to Rs. 176.6
bn (PKR) as of December 31 2007, further increasing to Rs. 180 bn (PKR) as of Sep 30, 2008.

This acquisition is the largest foreign currency generating transaction in Pakistan’s banking
sector after Habib Bank, as it will generate close to US$250 million inflow into Pakistan from
Singapore. The rights issue of 555 per cent at par was announced earlier and has been
exceedingly well received by the market with the NIB stock price showing more than 400 per
cent gain in the last few weeks. The sub debt issue has also received full subscription and was
oversubscribed by 25 per cent.
Upon merger, the bank is expected to have total assets close to Rs180 billion and total
employees of over 4400.
NIB was created in October 2003 and has been one of the fastest growing banks since. It has
recorded a growth in total assets of 543 per cent to Rs56 billion and a growth in deposits of 849
per cent to Rs35 billion. The total number of people employed has grown from 249 to over
2000 in a short period of three and a half years.

Its present paid-up capital of Rs. 40.4 bn (PKR) is the highest amongst banks in Pakistan.
Temasek Holding remains the largest single shareholder with approximately 74% shares.

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  Pre-Merger Strategy

The process for the proposed merger of National Fullerton Asset Management Company
(NAFA) (27% owned associate) with PICIC Asset Management Company Limited (PICIC AMC)-a
whollyowned subsidiary-was handled very strategically. To realize its aggressive growth
objectives, the NIB developed a segmentation strategy through which it would offer a unique
banking experience to customers in each of its corporate, commercial and consumer business
segments. For this purpose, NIB organized itself around two specific principles: first, NIB will be
a customer-centric organization, which means that in whatever it does, the customer will
always come first; and second, there will be a strong focus on efficiency, which means that
whatever NIB does, it will do in the shortest possible time and at the lowest possible cost.

 Post-Merger Strategy

The acquisition of a majority stake and management control of PICIC and PCBL by NIB in June
2007 helped it in progressing towards the integration process, of both staff and operating
platform, on a fast track basis. Meanwhile, NIB continued its assertive growth in advances and
deposits on a standalone basis during 2007. While the fund and fee-based income registered a
healthy increase, the high provisioning expense due to the change in regulatory provisioning
criteria resulted in a net loss during the year.

After the merger, the combined entities emerged as the leading asset management company in
the private sector, and provided a stable dividend stream to the bank.

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Letter:

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CONCLUSION:

The NIB bank in the year 2004, 2005 and 2006 is showing positive ratios while
the bank profitability decreased and even it suffered huge losses due to the acquisition of PICIC
and PCBL during the years 2007 and 2008. This is because of huge provisions a g a i n s t t h e
obligations of PICIC and PCBL. These provisions were made by the proper
notice from the State Bank of Pakistan as this was mandatory for the
N I B bank. The NIB bank although made a profit of 2 billion during the years 2007
and2008 but it was veiled by the huge provision. NIB bank made for about 9 billion
of provisions in 2008. Expenses were also increased during these two years and the
earnings were not enough to cover these expenses. Similarly the total
a s s e t s a l s o increased as NIB bank acquired the prescribed banks so there was a huge
problem of managing these assets. Second reason but an indirect reason for the losses
in 2007 and 2008 is there recession, which affected almost all the world’s economic
systems. Thus all the banks in Pakistan as well as NIB bank were affected by this economic
crisis. NIB bank’s managers should properly manage assets by understanding
the basic principals of management and by implementing them properly. They should use the
resources optimally. They should also erythematic such a marketing campaign that promotes
the bank and create value of the bank in the minds of its customers.

REFRENCES:
http://nibpk.com/about-us/#!/about-us/?page_id=4

https://www.questia.com/library/journal/1P3-3162857141/nib-picic-merger-corporate-governance-
compliance

https://www.thenews.com.pk/archive/print/61837-nib-bank-acquires-63pc-stake-in-picic

http://fp.brecorder.com/2006/12/20061207505027/

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