Commercial Banks: STANDARD CHARTERED BANK (PAKISTAN) LIMITED - Year Ended December 31, 2006 (Audited)
Acquisition of Union Bank Limited by Standard Chartered Bank for US $487 million on September 5, 2006 has been the largest M&A transaction in Pakistan's banking history. Standard Chartered had established its first branch in Karachi in 1863 and was the first international bank in Pakistan.
In order to take full advantage of acquisition, it was decided to establish a locally incorporated entity under the name of Standard Chartered Bank (Pakistan) Limited (SCBP) which was incorporated in Pakistan on July 19, 2006. SCBP was granted approval for commencement of banking business by State Bank of Pakistan, with effect from December 30, 2006.
SCBP commenced formal operations on December 30, 2006 through amalgamation of entire undertaking of Union Bank Limited and the business carried by the Branches in Pakistan of Standard Chartered Bank, incorporated by Royal Charter and existing under the laws of the England. The scheme of amalgamation was sanctioned by State Bank of Pakistan vide its order dated December 4, 2006. The ultimate holding company of SCBP is Standard Chartered Plc., incorporated in England, which holds almost 99% of its shares.
In consideration of the above amalgamation, the shareholders of Union Bank have been issued and allotted fully paid shares in SCBP in the ratio of 2.5:1 ie 2.5 shares of face value of PKR 10 each in SCBP for 1 share having a face value of PKR 10 each in Union Bank. The swap ratio has been determined on the basis of valuation carried out by Ford Rhodes Sidat Hyder & Co Chartered Accountants.
SCBP is engaged in the banking business through a total number of 115 branches in the country and two branches in Sri Lanka (2005: 43 branches in Pakistan) in operation at December 31, 2006. Pacra has assigned to the bank a long term rating of "AAA" (Triple A) and a short term rating of "A1+" (A One Plus). The bank has three subsidiaries, all incorporated in Pakistan: (i) Union Leasing Limited; (ii) Standard Chartered Modaraba; and Standard Chartered Services of Pakistan (Private) Limited. However, the Overview hereunder is that of the bank alone, without consolidation with its subsidiaries.
Total assets of SCBP as on December 31, 2006 saw 121% increase to Rs 246 billion compared to Rs 112 billion as on December 31, 2005. On December 31, 2006 Investments show 37% increase to Rs 35 billion (14% of Total Assets) compared to Rs 25 billion (23% of TA) as on December 31, 2005. Of the total, the bank has nearly 100% Investments on June 30, 2006 in Available for Sale Securities (2005: 94%). It may be noted that numbers for the 2006 reflect the amalgamation of Union Bank Limited with and into SCBP while the number for 2005 relate to former Standard Chartered Bank- Branches in Pakistan.
The bank's Advances as on December 31, 2006 were Rs 129 billion (53% of Total Assets), registering 9% increase over 2005 Advances at Rs 50 billion (45% of TA). On December 31, 2006, 94% Advances (2005: 95%) were in local currency, while 71% (2005: 59%) of the total Advances were for short term. Major exposure of the bank on December 31, 2006 was in Textile (14%), Chemicals & Pharmaceutical (6%), Agribusiness (1%), Cement (3%), Financials (3.45%), Public Sector (6%) and Individuals (42%).
As on December 31, 2006 gross NPLs were Rs 7.5 billion (2005: Rs 0.4 billion). In percentage terms gross NPLs on December 31, 2006 were 6.5% of gross Advances (2005: 1.2% of GA). For the year 2006, SCBP has made full provision against NPLs according to the SBP criteria. However, as some doubtful loans remain un-discovered at least for sometime due to different reasons, a prudent policy for the bank would be extra vigilance in the appraisal and monitoring of all loans.
SCBP has the highest paid up capital among banks in Pakistan with a Capital Adequacy Ratio of on December 31, 2006 at 10.19% (2005: 15.69%) as against prescribed minimum equivalent to 8% of the risk weighted assets of the banking company.
IT MAY BE NOTED THAT THE NUMBERS FOR THE 2006 PROFIT AND LOSS ACCOUNT OF SCBP INCLUDE: (a) the results of the former Standard Chartered Bank- Branches in Pakistan from January 1, 2006 to December 29, 2006 with former Union Bank from September 5, 2006 to December 29, 2006 and (b) that of SCBP for two days ie December 30 and 31, 2006.
Total mark up income of SCBP for 2006 more than doubled to Rs 14.56 billion compared to Rs 7.031 billion for the previous year. Net interest income (after provisions) for 2006 experienced 64% increase to Rs 8.772 billion (2005: Rs 5.34 billion). Total average mark up-interest expense represented 29% of total mark up income for 2006, compared to 25% average mark up expense for 2005.
Non-mark up income of the bank for 2006 was 50% higher at Rs 3.68 billion as against Rs 2.45 billion for 2005. The bank's Profit after Tax for 2006 rose by 41% to Rs 5.71 billion compared to Rs 4.05 billion for the previous year. ROE for the year is very attractive at 14% (2005: 48%). Performance statistics are given below.
Competition in banking services is expected to be more severe in the coming days. The strategic intent of SCBP is to be the best bank in Pakistan, leading the way with superior performance, sustained service excellence and engaged people.
According to the Directors' Report, the acquisition of Union Bank is not the end game but the start of a new chapter for growth in Pakistan. Let us see if SCBP and other banks in Pakistan would also offer better returns to the ordinary depositors.
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Performance Statistics (Audited)
Balance Sheet (Rs million)
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As on Dec. 31, 2006 2005
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Total Assets: 246,318 111,668
Cash, balances with banks: 26,343 11,268
Investments-Net: 34,817 25,358
Advances-Net: 129,438 50,215
Borrowing from fin. Institutions: 22,045 7,211
Deposits, other accounts: 156,878 83,646
Total Liabilities: 206,088 103,262
Net Assets: 40,230 8,406
Share Capital: 38,716 -
SCB Head office Capital A/C: - 4,104
Reserves & Un-app. Profit: 1,843 4,657
Equity: 40,559 8,761
Surplus on Revalue, Assets: -329 -355
Equity incl. Revalue Surplus: 40,230 8,406
Advances-Gross: 138,408 50,828
Gross NPLs: 7,498 401
Total Provision: 8,970 613
Conting. & Commitments: 134,363 79,683
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Ratios: 2006 2,005
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Cash & bank/Total Assets: 11% 10%
Investments/Total Assets: 14% 23%
Advance-Net/Total Assets: 53% 45%
NPLs/Advances-Gross: 5.4% 0.8%
NPLs Prov./Advances-Gross: 6.5% 1.2%
Deposits/Total Assets: 64% 75%
Total Liabilities/Total Assets: 84% 92%
Total Equity/Total Assets: 16.3% 7.5%
Deposits/Equity-Times: 3.9 10.0
Advances/Deposits: 83% 60%
Investments/Deposits: 22% 30%
Conting.& Comm./Equity-Times: 3.34 9.48
Book Value Per Share: 10.39 20.48
KSE Price/Share (28-05-07) Rs: 53.90 -
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Income Statement 2006 2005
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Mark-up-interest earned: 14,565 7,013
Mark-up-interest expensed: 4,229 1,737
Net Mark-up-interest income: 10,336 5,276
Provisions and write offs: -1,563 63
Net mark up income (aft. Prov.): 8,773 5,339
Total non-mark-up income: 3,687 2,450
Income bef. Admn. Exp.: 12,460 7,789
Admin Expenses, etc: 5,100 2,362
Profit before Taxation: 7,360 5,427
Current & deferred tax: 1,651 1,370
Profit after taxation: 5,709 4,057
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Ratios: (Annual Basis) 2006 2005
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Mark-up earned/Total Assets: 5.9% 6.3%
Net Mark-up Income/TA: 4.2% 4.7%
Net mark-up (aft. Prov.)/TA: 3.6% 4.8%
Non-Mark-up Income/TA: 1.5% 2.2%
Income before AE/TA: 5.1% 7.0%
Admin Expenses/TA: 2.1% 2.1%
Profit before Taxation/TA: 3.0% 4.9%
Profit after taxation/TA: 2.3% 3.6%
Profit after tax/Total Equity: 14.2% 48.3%
EPS-(year-end paid up) - Rs: 1.47 9.89
Price/Earning Ratio: 36.55 -
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Cash flow Summary 2006 2005
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Net Cash flow, Operations: -3,174 11,212
Net Cash flow, Investing: -17,003 -11,205
Net Cash flow, financing: 25,325 -2,502
Change in Net Liquidity: 5,148 -2,495
Cash in Union Bank at acquisition: 9,926 0
Net Liquidity at beginning: 11,268 13,763
Net Liquidity at end: 26,342 11,268
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COMPANY INFORMATION: : Chief Executive Officer: Badar Kazmi; Director: Richard Henry Meddings; Director: Ms. Kate Susannah James; Company Secretary: Ms. Muneeza Kazi; Auditors: KPMG Taseer Hadi & Co, Chartered Accountants; Legal Advisors: Haidermota & Co, Barristers at Law & Corporate Counsellors; Registered & Main Office: Standard Chartered Bank Building, I.I. Chundrigar Road, Karachi-74000, Pakistan; Web Address: (www.standardchartered.com.pk).
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