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Sunday, 27 September 2009

Pakistan : BankIslami looking to acquire another bank

KARACHI: BankIslami is looking to buy another bank to expand its asset base even as it finalises the purchase of consumer finance portfolio of Citibank Pakistan, its CEO Hasan Bilgrami told The News on Saturday.

“We hope to come out with an announcement in the next three months. Various banks are under consideration,” he said in an interview, adding: “It could either be a commercial bank or Islamic.”

Any bank acquisition will come on the heels of a deal under which BankIslami is purchasing Rs3 billion auto and house financing portfolio of Citibank. The process of due diligence is already under way.

But getting the finance portfolio of a conventional bank could be tough for an Islamic bank, which does not recognise interest income.

Bilgrami said each and every transaction would have to be converted into Islamic mode of financing. “We will go back to the individuals and offer them a deal they will not resist.”

The options may include a rate break, he said, explaining that someone paying an interest of Rs15,000 could be offered Rs14,500. “This makes commercial sense and I don’t think anyone will have problem with this sort of arrangement.”

Citibank’s two consumer finance portfolios have some 9,000 customers and he said the cost of dealing with them will be factored in what BankIslami pays to bring them on its books. BankIslami should have been content with exceptional growth in its assets, number of depositors and an unprecedented expansion in outreach at 34 branches a year.

But Bilgrami says Citibank’s portfolio acquisition is a strategic fit as the customers could easily be approached. He said the bank will be giving away Rs25 to Rs30 million to charity in order to compensate for interest-based transactions, which will be realigned with Islamic mode of banking.

BankIslami has put hold to open up new branches which at total of 102 are spread across the country in 49 cities now. Till now the bank has not performed well financially. However, that is about to change. Bilgrami says the total carryover losses of Rs350 million will be eliminated by end of the year.

“These losses reflect our cost of expansion. But even the losses were not that much when compared with other banks. We were best of the worst.”

BankIslami saw substantial increase in a number of its depositors especially in last few months. Since December 2008, the depositors have increased by 2.5 times. Interestingly, this is when the bank is giving the lowest rates on deposits.

Bilgrami, the light-bearded CEO, mince no words in saying that his bank is offering return on 10-year deposits which any other bank is willing to give on a one-year term to customers. “It’s not just about the rate of return. It is about the look, service and quality. There are many other variables which attract the customers,” he said. “People believe us to be an Islamic bank.”

Indeed, Islamic banks are following the religious traditions. From the scarf-wearing receptionists to the secretary who wears a head-to-toe veil, the banks are an embodiment of the Islamic orthodoxy. There has been a lot of criticism on Islamic banks that are accused of using the religious nametags for following interest rate regime of commercial banks.

Bilgrami said there is nothing wrong in that. “There is no restriction on using Kibor (Karachi inter-bank offered rates) as benchmark by Islamic banks,” he said. About a proposed creation of an exclusive Islamic inter-bank market, he said work under way in this regard.

(The International News)

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