According to a regulatory filing by the country’s biggest commercial bank yesterday, Habib Bank (HBL) is expected to enter the microfinance banking segment by acquiring Pakistan’s second-largest microfinance bank in terms of savings value.
“HBL intends to look at acquiring a significant shareholding in First Microfinance Bank, which already has a base and presence in the microfinance sector all over Pakistan,” HBL said in the notice while choosing not to disclose the amount of investment it is willing to commit.
However, in the statement of material facts published a fortnight ago along with its annual report 2014, HBL disclosed that it is committed to investing a maximum of Rs2 billion in acquiring First Microfinance Bank ‘by way of equity’ over the next three years.
Habib Bank is Pakistan’s largest bank, with total assets of over Rs1.7 trillion. At the end of 2014, HBL operated nearly 1,600 branches.
Although First Microfinance Bank’s financial statements are not publicly available, a centralised databank for the microfinance banking industry shows that its total savings value at the end of 2014 was Rs8.7 billion, with a market share of 20.1%. Its gross loan portfolio was over Rs5 billion, making it the fifth largest microcredit provider, with a market share of 7.6%.
The ‘special resolution’ that will be proposed at the 73rd annual general meeting of HBL shareholders on March 27 states that HBL intends to obtain a “majority shareholding” in First Microfinance Bank.
The exact shareholding that HBL is going to acquire depends on the share price, which will be determined following the completion of due diligence and valuation by an independent firm of chartered accounts. However, HBL has stated that it will purchase shares up to a total value of Rs2 billion. First Microfinance Bank had equity of Rs1.1 billion at the end of 2013.
The State Bank of Pakistan (SBP) has granted HBL permission to conduct due diligence and evaluate First Microfinance Bank’s operations.
Currently, HBL does not hold any shares in First Microfinance Bank directly. However, the two entities are associated through their parent company. Aga Khan Development Network, through Aga Khan Fund for Economic Development (AKFED) and Aga Khan Agency for Microfinance (AKAM), owns more than 20% of the shares in both HBL and First Microfinance Bank.
First Microfinance Bank became profitable in 2013 when it posted earnings per share of Rs1.06 after recording losses per share of Rs0.93 and Rs0.50 in 2011 and 2012, respectively. According to the statement of material facts released by HBL, the Bank’s operating profit was Rs171 million in 2013, up 204.8% from the preceding year.
