SBP capital conditions: American Express folding up Pakistan operations

In the wake of State Bank of Pakistan's decision to enhance the minimum capital requirement to Rs 2 billion for a banking licence, American Express Bank (Amexco) has decided to close its operations and sell its licence in Pakistan, it is reliably learnt.
The US-based company entered Pakistan for travel related business in 1949. It was issued foreign exchange licence as its traveller's cheques were a dominant feature in world tourism and travel business.
By the mid-fifties the company had converted into a bank in the US and become the first American bank to operate in Pakistan. It was not until 1962 that Citibank and Bank of America ventured into Pakistan territory.
By 1997, Amexco had four branches with loan, discount and overdraft cumulatively amounting to Rs 10 billion and a balance sheet of nearly $200 million. On forex exchange freeze of private deposits in 1998 the bank was jolted like all other foreign banks but was still a profitable entity.
Unfortunately, the parent company decided to do away with corporate lending world-wide as it was not a profitable business.
Pakistan was an exception, yet Amexco (Pakistan) had to comply and shed corporate accounts, reduce its staff of 110 persons and shift the focus to consumer banking.
However, this change did not prove profitable as owners of American Express Card, ie American Express Company, had earlier entrusted the profitable franchise of credit card to Union Bank Limited, having a much larger network of branches, in order for the card business to grow and also reduce the card processing risk.
Since credit card is always considered the main anchor in consumer banking business, Amexco (Pakistan) could not do much to make the consumer business grow.
With $18 million in capital and reserves, the franchise could maintain its presence, but doubling of minimum capital was the last straw on camel's back.
According to market sources, two or possibly three or more foreign banks could pull out of Pakistan before the SBP deadline of December 31, 2005, for minimum capital requirement of Rs 2 billion, if SBP does not give them a sweetener to stay.
According to sources in Amexco, due diligence by potential buyers of the licence would commence within the next two weeks.