Thread by @FahdSheikh3

#Pakistan Banking Sector M&A —
A Thread 🧵

Interesting things happening in 🇵🇰’s banking sector related to #GCC-based sponsors.

Samba Bank is leaving 🇵🇰 🔜 after parent entity’s merger with NCB in Saudi Arabia 🇸🇦, & MergeCo Saudi National Bank’s decision to divest some assets.

Silk Bank is on perpetual sale after its abysmal performance in #Pakistan 🇵🇰 despite benefitting from one of the highest equity injections till-date. It is to be sold 🔜 and IFC / Nomura / Bank Muscat / Gourmet Group along with others will take a massive hit on their investment.

In banking, the best combination is always *a strong sponsor with a strong management team*. If you can get that right, there’s no better business in #Pakistan.

However, if your institution does not benefit from either of the two, then the bank is highly likely to underperform.

Al Baraka Bank of #SaudiArabia may also eventually divest. From an ROE perspective, it doesn’t make sense for its sponsors & #Bahrain-based 🇧🇭 HoldCo to retain its banking license in Pakistan 🇵🇰 as ROCI is very low.

But from a geographical presence point of view, it’s fine.

Faysal Bank’s (#FABL) sponsor Ithmaar Holdings of #Bahrain 🇧🇭 (ultimate beneficial owner being the former King Faysal’s family members in #SaudiArabia) is selling its other assets & only FABL - #Pakistan will be left in the portfolio as the sole viable & earning asset.

#FABL has a good valuation potential after full conversion to Islamic (in the process of converting), as it will most likely trade at a lesser P/B discount as compared to the price that the currently best-in-class Islamic bank of #Pakistan, Meezan Bank (#MEBL), trades at today.

Bank Alfalah, owned by Dhabi Group of #UAE 🇦🇪 along with #IFC, has probably the highest cost-to-income ratio (56%) in the Top 10 banks of #Pakistan, and a lower ROE amongst its immediate peer group.

This is despite having the highest ADR & current account base in the same group.

It’s obvious to investors that #BAFL is less efficiently run given its lower ROE despite a 735+ local & foreign branch network.

This is probably why its share price continues to struggle (notwithstanding a recent bullish report & aggressive TP of Rs. 48 from Topline Securities).

Summit Bank (#SMBL) is being revived by #UAE-based 🇦🇪 investors (Nasser Lootah Group) through a fresh equity injection against issuance of new shares (@ Rs. 2.51) other than right shares.

Management change has already taken place; it’s a potential turnaround case & one to watch.

What’s commendable is the high ADR of #GCC-owned banks in #Pakistan 🇵🇰. 

Unlike most Pakistani-owned banks (which have been lending on a risk-free basis to #GOP for years), GCC-owned banks have been undertaking aggressive, risk-based lending to the private sector.

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