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KARACHI: The board of directors of United Bank Limited (UBL), in its meeting held on September 11, 2023 made significant strategic decisions regarding its future operations and approved two major initiatives - divestment of shares in United National Bank Limited UK (UNBL UK) and establishment of an Exchange Company.

According to a notice sent to Pakistan Stock Exchange on Tuesday, UBL plans to establish an Exchange Company as a wholly-owned subsidiary with an initial paid-up capital of Rs 1.0 billion, subject to approval by the SBP and other regulatory authorities.

This decision of UBL closely aligns with the recent structural reforms introduced by the SBP in the Exchange Companies’ sector, Sana Tawfik at Arif Habib Limited said adding that these reforms encourage leading banks, particularly those actively engaged in foreign exchange business, to establish dedicated Exchange Companies, emphasizing their role in meeting the legitimate foreign exchange needs of the general public.

The SBP’s move comes in response to concerns over the weak operational structure and inadequate compliance levels observed within category ‘B’ exchange companies.

The SBP has now advised both category ‘B’ firms and franchisees to either merge with established full-fledged entities or sell their businesses to stronger counterparts.

Failing to comply with this directive within the stipulated three-month window will result in the automatic cancellation of licenses for standalone category ‘B’ firms.

The SBP has also asked the exchange companies to increase their paid-up capital to a minimum of Rs 500 million (excluding losses) by December 31, 2023, up from the current minimum requirement of Rs 200 million.

Secondly, the UBL board of directors approved the “Indicative Offer” received from Bestway Group (BG) to acquire UBL’s entire 55 percent shareholding in UNBL UK, a subsidiary.

This transaction is subject to regulatory approvals in both Pakistan and the UK. The decision to divest up to 55 percent of UBL’s shares in UNBL UK is a significant move, Muhammad Abrar, another analyst at Arif Habib Limited said.

The divestment in UNBL UK is expected to have a positive impact on UBL’s Capital Adequacy Ratio (CAR). This enhancement is attributed to the removal of UNBL UK’s risk-weighted assets, which totaled Rs 339.2 billion, from UBL’s balance sheet. Furthermore, with UBL’s anticipated higher profitability, it is projected that the bank will maintain a CAR surpassing 16 percent (compared to 14.8 percent in the first half of CY23). This improved CAR provides UBL with the capacity to maintain its recent dividend payouts.

To recall, the bank paid out Rs 22 per share in the first half of CY23, suggesting that UBL is likely to continue its trend of offering a higher dividend to its shareholders following the materialization of sale of UNBL UK, Abrar said.

The notice mentioned that the UNBL UK contributed Rs 0.57 to the consolidated EPS of UBL for the first half of 2023 and EPS of Rs 0.48 for full year 2022.

UNBL UK is a banking institution incorporated in the United Kingdom. UNBL UK was formed in 2001 from the merger of the UK branches of United Bank Limited and National Bank of Pakistan.

The principal activities of UNBL UK are to provide retail banking, wholesale banking and treasury services to financial institutions and trade finance facilities to businesses of all sizes. UNBL UK operates one branch inside United Kingdom under the trade name of United Bank UK.

To recall, as of the first half of 2023, UBL’s consolidated Capital Adequacy Ratio (CAR) stood at 14.81 percent, whereas the unconsolidated CAR stood at 16.92 percent. In the first half of 2023 CBS, management mentioned that the difference is due to rupee devaluation and its impact on its subsidiaries outside Pakistan.

After the successful completion of this deal, it will have a positive impact of 200bps on its consolidated CAR, bringing it closer to the levels of the unconsolidated CAR, Sunny Kumar at Topline Securities said.

“We believe that the upward revision in CAR will increase the bank’s dividend-paying capacity in the future,” Kumar said.

Copyright Business Recorder, 2023

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