NIB Bank-MCB Bank merger approved

The board of directors of MCB Bank on Wednesday approved and recommended the Scheme of amalgamation of NIB Bank with and into MCB by way of amalgamation/merger of NIB with and into MCB through a share swap arrangement, according to a notice sent to Pakistan Stock Exchange (PSX). The board of directors of NIB Bank, in its meeting, also approved the amalgamation of the NIB Bank with and into MCB Bank in accordance with the terms of the draft agreement for amalgamation.
The Committee of MCB board of directors has also approved and recommended a swap ratio of one new ordinary share of MCB for every 140.043 shares of NIB Bank for the scheme of amalgamation which means that every person who, on the effect date (under scheme of amalgamation), stands registered as the holder of any ordinary share of NIB Bank shall be entitled to receive one (01) new ordinary share of MCB for every 140.043 shares of NIB Bank held by him.
The above decisions of the committee are subject to, amongst others, the approval of the shareholders of MCB Bank in their extraordinary meeting, sanction of the State Bank of Pakistan, approval of the Competition Commission of Pakistan and receipt of other requisite regulatory authorities, consents and approvals. Based on the prevailing market price of MCB and swap ratio of 140, value of NIB share comes to Rs 1.6, which is at a discount to book value of Rs 1.8/share. Currently, NIB Bank is trading at Rs 1.9.
NIB Bank's total deposits currently stand at Rs 118 billion, which is 16 percent of MCB Bank's total deposits. This will take total deposits of MCB to Rs 887 billion. The number of branches of MCB Bank will increase by 171 branches to 1,395 branches. Alongside the usual synergies post merger of the banks, MCB Bank could also benefit from the deferred tax assets of Rs 9 billion (Rs 7.5/share), lying on the books of NIB Bank that could be used to reduce future tax liability of the bank.
MCB Bank also plans to use its experience to recover NPLs on the books of NIB. NPLs of NIB bank currently stand at Rs 27 billion with a gross loss ratio of 22 percent, considerably higher than industry average. "We can continue to see a further consolidation in the banking sector going forward as smaller banks face difficulty in meeting capital requirement set by the central bank as per the Basel III regulations," an analyst at Topline Securities said.
MCB Bank is currently trading at a 2017 PE of 10.4x and PBV of 1.7x with ROE of 16 percent. Meanwhile, Yameen Kerai has been appointed as acting president and Chief Executive Officer (CEO) of NIB Bank with effect from December 8, 2016. Yameen Kerai has replaced Atif R. Bukhari, who resigned after the approval of amalgamation of NIB bank into MCB bank. It may be mentioned here that the NIB bank's board of directors on Wednesday has approved a proposal of amalgamation of NIB Bank into MCB Bank subject to regulatory approvals.