Due to Silkbank Ltd’s previous losses, United Bank Ltd and Silkbank Ltd may combine.
The Silkbank urgently requires financial assistance since its capital has fallen to an all-time low. In addition, the bank’s capital adequacy ratio in December 2020 was -4.45 percent as opposed to the advised level of 11.5 percent.
Silkbank has been losing money for a long time. At the end of 2020, the most recent time period for which the bank has made its financial accounts available, its total losses stood at Rs20.2 billion.
UBL stated in a Friday statement to the Pakistan Stock Exchange (PSX) that “it is exploring a potential merger with Silkbank Limited and intends to seek permission of the State Bank of Pakistan (SBP) to commence due diligence.”
The possible merger, according to the statement, “will continue to be subject to due diligence, internal and regulatory approvals, and definitive documents.”
An analyst predicted that UBL will choose to combine its Islamic banking business with Silkbank in order to increase its reach due to the rising demand for financial products that adhere to Shariah.
According to him, UBL may buy the bank for a fair price and use its experience to turn Silkbank’s non-performing loans into performing loans. As a result, over the long term, the buyer can profit from the distressed assets.