Silkbank (SILK.PSX) from Pakistan announced on Thursday that it is currently engaged in discussions regarding a possible investment of a maximum of 50 million euros ($54.5 million) by International Commercial Bank (ICB) of South Sudan. This development resulted in a nearly 8% increase in Silkbank’s shares.
The talks follow a commitment made by the Pakistani government to the International Monetary Fund (IMF) in September, which stated that two of the country’s commercial banks would be put into resolution by May if their recapitalization plan’s initial phase did not succeed by March.
According to analysts, although the International Monetary Fund (IMF) has not explicitly identified the two banks that the Pakistani government promised to put into resolution by May, it has been suggested that Silkbank and Summit Bank could be the ones in question. The reason for this is that these banks’ capital adequacy ratios have been below the criteria set by the State Bank of Pakistan.
The capital adequacy ratio is an important measure of a bank’s financial health and reflects its ability to absorb potential losses. If a bank’s capital adequacy ratio falls below the minimum threshold, it may not be able to meet its financial obligations and could be at risk of insolvency.
In order to fulfill the commitment made to the IMF, the Pakistani government’s resolution plan for the two banks could involve a forced restructuring, amalgamation, or an outright sale. These measures would aim to improve the banks’ financial health and ensure their continued operation.
As for Silkbank, it has a market capitalization of $34.9 million, and 35% of its stock is listed on the Pakistan Stock Exchange website. The potential investment of up to 50 million euros by International Commercial Bank of South Sudan could provide a much-needed boost to Silkbank’s capital base, which could potentially help it meet the capital adequacy requirements set by the State Bank of Pakistan.
In the past year, Silkbank had discussions with Park View Enclave (Private) Limited, which is owned by Pakistani businessman and politician Aleem Khan, about a potential investment, but the talks eventually fell apart.
While the news of International Commercial Bank of South Sudan’s potential investment is positive, it is important to note that the deal is not finalized, and Silkbank still needs to meet the capital adequacy requirements. Fahad Rauf, the head of research at brokerage Ismail Iqbal Securities, pointed out that the investment does not solve the issue until the deal is completed and the bank is sufficiently capitalized.
In response to the announcement, Silkbank stated that its board of directors had reviewed International Commercial Bank of South Sudan’s letter of intent during a meeting on Wednesday and granted approval for Silkbank management to formally pursue the possible investment.