KARACHI (October 05 2006): Dutch bank ABN Amro is eyeing a stake in Prime Bank, and plans to start a due diligence review of the mid-sized Pakistani lender soon, sources familiar with the development said on Wednesday. "ABN Amro has been granted permission by the state bank to conduct the due diligence of Prime Bank," said a banking source, who declined to be identified.

He, and other sources, however, did not say how much time the process will take. Senior ABN Amro and Prime Bank officials were unavailable for comment. Prime Bank has a network of 63 branches across country, and its deposits amounted to around 40 billion rupees ($660.5 million) as of June 30.

Prime Bank shares closed 5 percent up on Wednesday, at 55.65 rupees, in a broader market, which was up 1.43 percent. It has a stock market value of about $250 million, according to Reuters data. Dealers said Prime Bank's sharp rise was due to speculation over ABN Amro's interest.

ABN Amro is one of several foreign banks eyeing possibilities in Pakistan. Britain's Barclays Plc, Singapore's Temasek Holdings, and HSBC are among those exploring possibilities, according to bankers. Analysts say foreign banks have been attracted to Pakistan's financial sector by reforms that have laid the platform for rapid growth and rising incomes.

Major banking reforms pushed through by Prime Minister Shaukat Aziz, the finance minister President Pervez Musharraf poached from Citibank and then promoted to premier, have helped the economy's rehabilitation. Banks' profits grew 87 percent in 2005 and are expected to grow at around 44 percent this year, according to analysts.

They say that over the next few years, the banking sector will likely see more consolidation because of higher capital adequacy ratios and new regulations under Basel II. Driven by high profits, banking sector stocks have gained 44 percent so far this year, analysts said, outperforming a near-11 percent rise on the broader stock index

Bankers say that after the sale of Union Bank, PICIC Commercial Bank, Soneri Bank and Prime Bank are the next likely targets for foreign buyers. However, they say that potential buyers will try to pay less for these banks, compared with the price that Union was able to attract. Standard Chartered paid over 17 times Union Bank's 2005 earnings and 5.6 times its net asset value as of the end of March.

Copyright Reuters, 2006