Twelve banks presently listed on the Karachi Stock Exchange (KSE) have to raise their capital to Rs 1.5 billion by December 31, 2004, to meet the first requirement of the State Bank of Pakistan (SBP).
The State Bank of Pakistan on Wednesday issued a circular that all scheduled banks must have a minimum paid up capital of Rs 1.5 billion by December 31, 2004 and Rs 2.0 billion by December 2005. According to an analyst this is a part of the central bank's ongoing programme of strengthening the banking sector and weeding out the weaker banks.
According to the findings, currently only six listed banks - Bank Alfalah, Faysal Bank, Muslim Commercial Bank, National Bank of Pakistan, Saudi Pak Commercial Bank and Union Bank have paid up capital in excess of Rs 2.0 billion.
Most of the listed banks currently have a paid up capital of less than Rs 1.5 billion and they would likely offer bonus shares in the coming four months to meet the minimum capital requirement of Rs 1.5 billion by December 31, 2004.
Almost 12 banks have paid up capital less than prescribed amount. The paid up capital of these banks ranged from Rs one billion to Rs 1.475 billion. These includes Askari Commercial Bank, Bank Al-Habib, Bank of Punjab, Bolan Bank, CresCom Bank, KASB Bank, Meezan Bank, Metropolitan Bank, NDLC-IFIC, Prime Bank, Soneri Bank, and Trust Commercial (all in alphabetical order). PICIC Commercial Bank has a paid up capital of Rs 1.823 billion, so it has over one and half year to reach the target of Rs 2.0 billion.
A banking expert said that to meet these requirements, banks will either issue bonus shares (to transfer some of their reserves into a paid up capital), or issue rights shares, or merge with another bank.
The SBP has also allowed banks to deal in three types of financial instruments - interest rate derivatives, forward rates agreements and swap instruments, being both interest rate and currency rate swaps. Further banks/DFIs have been allowed to invest in unsecured TFCs to raise second and third tier capital. However, it has been mandated that for banks and DFIs, such TFCs must not exceed 10 percent and 25 percent of their equities, respectively.
The total equity of National Bank, Muslim Commercial Bank, Faysal Bank and Saudi Pak Bank as on March 30, 2004 was at Rs 19.131 billion, Rs 8.043 billion, Rs 5.519 billion and Rs 1.225 billion respectively.