What shape Meezan Bank Pakistan is going to acquire in future
Since some time three banks in Pakistan i.e. Bank Alfalah (BAFL), Meezan Bank (MEBL), and Faysal Bank (FABL) owned by foreigners from the Gulf are looking to sell them off as they want to seek exit opportunity from Pakistan's banking industry.
However the matter is still at halt due to SBP informal 'currency controls' as In such a case, any payment made to them will likely involve the Pakistani acquirer drawing down the country's dollar reserves by selling rupees and buying US dollars in the currency market and then sending that cash abroad to the sellers' home country (in this case, UAE, Kuwait, and Saudi Arabia respectively).
As an alternative State Bank may ask any acquirer of these banks to either raise the money to pay the sellers from outside Pakistan, and then make the payment without any money ever traversing through the Pakistani banking system at all (and thus not impacting the country's foreign exchange reserves), or if the money must leave Pakistan, that it do so in small installments paid out over an extended period of time. Both of these conditions are unlikely to work, the first being difficult if not outright impossible for the buyers, and the second being unacceptable to the sellers.
For the first time in Pakistani history, three perfectly healthy and viable banks are simultaneously up for sale. None of them is a distressed asset holder being sold by sponsors who had hastily gotten into the banking business and made too many bad loans that they did not have the capital or the stomach to be able to cover.
None of these banks are like nationalized banks filled with a balance sheet of politically motivated bad loans and an employee roster of people who want a paycheck for doing very little.
Among these banks Meezan Bank is the most valuable, as measured by its market capitalization, which is higher than that of Bank Alfalah.
As of Sep 2018 its asset base is Rs 842 billion against Rs 782 billion as of Dec 2017 Its deposits have gone to Rs 711 billion as of Sept 2018 from Rs 673 billion as on Dec 2017.
Hence if anything goes against the Meezan Bank is its deposit base that is growing too fast for its management to be able to profitably deploy in loans. The task is made much harder by the fact that - unlike other banks - it cannot buy long-term government bonds instead it has to rely on short term Sukuk with low rates of profits.
The longest tenure on a Shariah-compliant government bond in Pakistan is of three years, and its yields are typically lower than a conventional three-year bond. Conventional banks have responded to the historically low-interest rates in Pakistan by shoveling money into long-term government bonds, where they can earn a nice spread of several basis points above the oneyear bond. Islamic banks, Meezan has been working with the government to introduce a Shariah-compliant version of the 10-year bond.
In the meantime, when Meezan Bank is desperate to deploy its capital into corporate and commercial loans, and its existing and prospective client base know that, which is why they are able to bargain down for lower rates than they would pay on conventional loans.
It cannot rely on the religiosity of CFOs and corporate treasurers for higher rates, because Meezan Bank appears to have already run through the list of companies that bank only with Islamic banks and now has to compete for the Shariah-agnostic business alongside conventional banks.
Meezan Bank started its existence in 1997 as Al-Meezan Investment Bank, an institution with a limited licence to build up a cor- porate and investment banking franchise. At the time it started out, Al-Meezan Investment Bank was so small, and considered so insignificant, that it did not even have a full-time CEO. Irfan Siddiqui, the man who was given the job (and still has it) was serving as general manager (effectively COO) of Pak-Kuwait Investment Company (PKIC), a joint venture between the governments of Pakistan and Kuwait. Siddiqui continued in both capacities until at least 2001. However after joining Meezna Bank he tried to contact Gulf Arab states for its growth.
Meezan Bank's current shareholding is now dominated by Noor Financial Investments Company, a publicly listed company in Kuwait that manages the wealth of several of that country's richest families. Noor Financial owns 49% of the bank and has publicly made it known that its shares are up for sale. Most notably, in 2013, they tried to sell the bank to Habibullah Khan, the Karachi-based billionaire who owns Mega Conglomerate, a shipping and logistics conglomerate that has since branched out into real estate development and other industries as well. That transaction, however, was blocked by the State Bank of Pakistan, in part because Habibullah Khan was using an offshore company to conduct the transaction.
Meezan Bank's rapid growth makes it an attractive acquisition target, though the one risk it has is the fact that the founder CEO Irfan Siddiqui is unlikely to continue the job for much longer, having served in it for what is effectively more than 21 years.
The issues confronting Meezan Bank now at present are
1. Continuity of Management after Irfan Siddiqui leaves.
2. Investment avenues in short to absorb growing deposits on long term basis.
3. Reformation of treasury department that some times do transactions with conventional banks on conventional basis for its day to day liquidity management.
4. Sariah advisory committee role to focus on ways that how to compete with conventional market using Islamic financial products.
5. Though it is collaborating with IBA for its research activities but that has done nothing apart from holding annual seminars. Research activities require bringing agreement on definition of Riba, formulation if Legislation for Islamic Banking and Finance, Short term and long term market products, to make Islamic banking active part of macro policies, fresh curriculum of Islamic Banking and Finance for education. These areas are totally missing areas and totally in control of Muftis who know nothing about the financial market dynamics.