Summit Bank plans to meet minimum capital requirement with sale of assets

Israr Khan
Tuesday, Jan 24, 2023

ISLAMABAD: Summit Bank Limited (SBL) is mulling to sell its important strategic assets to meet the SBP’s minimum capital requirement, as the International Monetary Fund (IMF) has already taken the bank under its radar for being ‘undercapitalised’ for a few years, according to a top executive of the bank.

Through its staff report last year, the IMF asked the government [State Bank of Pakistan] to ensure the bank’s recapitalisation for enhancing the country’s financial sector’s resilience and creditability.

In the first stage, the fund asked for meeting the recapitalisation of the two publicly listed banks, including Summit Bank before the end-May of 2022, as they had been non-compliant with State Bank’s requirements for a few years.

Meanwhile, SBL management is finalising a transaction of handing over the bank to a UAE-based investor Nasser Abdulla Hussain Lootah, who has recently deposited $45 million (or Rs10 billion) in the bank to acquire around 51 percent shareholding and its management.

The board of the bank has already approved the selling of 3.98 billion shares other than the right shares to the new acquirer at the rate of Rs2.51/share. On Jan 16, 2023, the shareholders also passed a resolution in an extra ordinary general meeting in support of the transaction.

“This would entail a foreign direct investment of Rs10 billion ($45 million) that has already come into our bank [Summit Bank],” Jawad Majid Khan, president and CEO of Summit Bank said.

Negative equity of the bank is around Rs16 billion, and if the Rs10 billion comes, still Rs6 billion would be left to be settled. “But if you see the balance sheet, we have several important strategic assets and we shall do their disposal, SBL CEO said.

The major strategic assets [tower] disposal would completely revive the bank and take it exactly to the minimum capital requirement (MCR) required level, according to Jawad Majid Khan.

“We are not delaying it, Inshallah, it is quite possible that we come again in February 2023 meeting to seek your [shareholders’] permission for its disposal.”

In last one-and-a-half-year, he said, the bank had made an Rs6.5 billion cash recovery, which was probably the highest in the industry. By the end-FY22, the bank’s deposits had grown Rs11.5 billion of which Rs9 billion were current account deposits, Khan added. “Our CASA [current account saving account] is nearly 90 percent.”

After the resolution passed, he stated that now the bank would go into the next steps, which included approvals from the SBP, the Securities and Exchange Commission of Pakistan, and the Competition Commission of Pakistan. “The next step is that we would be going to the Central Depository Company when the shares will be issued.”

There would be a speedy revival and restructuring of the bank in 2023, he envisaged. When asked about term finance certificate of Rs1.5 billion that was under default, Khan said, “These are very pertinent questions”.

“As far as TFCs are concerned, we have taken an extension for one year from our TFC holders till October 2023. In our last TFC meeting, the holders were very much positive as they could see a turnaround of the bank.”

The CEO said the bank was “comfortable” regarding the liquidity, claiming that SBL was the most liquid bank in terms of size. “Our Advances to Deposit Ratio (ADR) is 44.8 percent, which would give you comfort that we are an excessively liquid bank, and we have invested that all in T-Bills, PIBs, and Sukuks.”

He further claimed that the bank’s market loss was the lowest in the entire banking industry of the country as its entire investment was floater and short-term. “In 15 days to three months, our entire book gets repriced.”

SBL CEO further termed conversion of Summit Bank into an Islamic bank a major step. The bank’s Islamic banking division had made a profit of Rs551 million by end-September 2022, considered as impressive against the overall bad performance results of the bank, he said.

Reportedly, the government has committed with the IMF that Summit Bank and Silkbank will be sent into ‘resolution’ by May 2023, if they were found unable to meet the first stage of recapitalisation by March 2023. If the banks failed, they would be forcibly restructured and even sold off altogether like KASB bank in 2015.