Samba issuing right shares to meet MCR

Wednesday, December 09, 2009
By Saad Hasan

KARACHI: Samba Bank will issue right shares to raise Rs3.2 billion in a bid to shore up its capital base to meet the State Bank of Pakistan’s (SBP) minimum paid-up capital requirement, the bank said on Tuesday.

The right shares will be issued to existing shareholders at a discount price of Rs5.75 per share compared to book value of Rs10. It will issue 6.34 right shares for every 10 shares held.

The bank has seen its capital depleted by accumulated losses to just Rs5bn in the six months to June 2009. As per SBP’s MCR, banks must have paid-up capital of at least Rs6 billion by the end of the year.

The development was received positively at the stock market as Samba’s share rose 10.65 per cent amid a broader market fall of 1.66pc.

Samba’s announcement follows similar initiatives by other banks, which have been scarred by heavy losses because of falling spreads and rising non-performing loans.

Just recently, Silkbank said it will issue right shares to raise its capital to Rs7bn. Its capital had reduced to just Rs3.3bn as of Sept 30 because of accumulated losses.

Soneri Bank has also decided to issue right shares to meet the MCR after its profit plunged to just Rs116 million in Jan-Sept 2009 from Rs716m in the same period of last year. Its capital stands at around Rs5bn.

Some banks have to opt for merger with larger banks after their sponsors refused to pump in more cash. Atlas Bank’s biggest shareholder is selling 58.31 per cent shares to Suroor Investment at Rs4.5 per share.

Suroor, the Mauritius-based investment firm, has already acquired a stake in Arif Habib Bank (AHB) and Mybank in similar deals earlier this year.

Atlas Bank saw its capital being wiped off to just Rs2.6 billion in the nine months to September 2009 during which period it suffered an after-tax loss of Rs1.4bn.

Economic slowdown, rising non-performing loans and loss on equity investments have cost dearly to banks. While drop in corporate earnings have made banks too cautious, consumer financing has almost stopped.

Mybank has also been in murky waters as in the nine months to September 2009 its loss increased to Rs1.167bn compared with a profit of Rs502m in the same period last year.

The SBP has been pushing the idea of consolidation for smaller banks, which are facing difficulty in raising deposits and earnings as the economy slowed down.

The financial downturn and its economic repercussions have turned out to be devastating for some other smaller banks, which have lost their equity to rising non-performing loans.

After seeing that even the global banking system was in crisis, the SBP revised the MCR for banks in Pakistan.

Now banks are required to have MCR of Rs6bn by end-2009 and then they have to increase it by Rs1bn each year till 2013.