United Bank Limited (UBL), one of Pakistan’s largest banks, has disclosed its intention to merge with Silkbank Limited potentially and will seek approval from the central bank to begin due diligence. This news has surprised analysts and the market, as Silkbank is a relatively small and financially vulnerable bank.
The move should be seen in the context of ongoing efforts by the government and undercapitalized banks to address an International Monetary Fund (IMF) mandate that emphasizes the need to enhance the financial stability of Pakistan’s banking system.
UBL announced its exploration of a potential merger with Silkbank in a stock exchange filing, stating its intention to request permission from the State Bank of Pakistan (SBP) to commence due diligence. The potential merger will be subject to due diligence, internal and regulatory approvals, and definitive documentation.
As of December 31, 2020, Silkbank’s minimum capital requirement (MCR) was Rs3.16 billion, and its capital adequacy ratio (CAR) was -4.45%, below the respective minimum limits of Rs10 billion and 11.50%.
UBL can secure a reasonable price for the asset and some relaxations from the SBP; acquiring Silkbank may make business sense.
Such mergers have indicated that the larger bank aims to utilize the smaller bank’s assets to achieve strategic objectives noting like MCB used NIB bank branches to convert them into MCB Islamic branches. Similarly, Silkbank can offer UBL an opportunity in consumer financing in this case, even though UBL’s consumer franchise is quite strong.
Silkbank may also provide substantial accumulated losses, which could help UBL realize tax savings.
 reveals plans for a possible merger with Silkbank Limited, seeking approval from the State Bank of Pakistan to begin due diligence, amid ongoing efforts to strengthen the financial stability of Pakistan's banking system.){kind=link}