Askari Bank, which is seeking the State Bank’s permission for the due diligence of KASB Bank (KASBB), may have been attracted by the loss-making bank’s taxable losses, the market analysts believe.
“Although the KASBB is a loss-making entity but taxable losses of the bank appear to have attracted the AKBL which is seeking SBP’s approval for a merger,” claimed InvestCap analyst Abdul Azeem.
The analyst said the AKBL’s present book value stood at Rs 15.85 per share while that of the KASBB at Rs 0.68 per share.
“In case using same book values for swap ratio without any adjustment BVPS comes to 4.3 AKBL shares for every 100 shares of KASBB,” Azeem said.
“Therefore, we believe the AKBL is expected to book the one-time tax benefit in its results while with the adjustment of contingences the book value of the KASB was likely to down further,” he said.
Giving a background of KASBB, Azeem said the bank was facing trouble in meeting the SBP’s Capital Adequacy Ratio criteria. The regulator, therefore, last month decided to put the bank under moratorium for six months to safeguard the depositors and other stake holder’s interest.
The bank’s, the analyst said, loss after tax had reduced by 58 percent Year-on-Year (YoY) from Rs 422 million to Rs 179 million for 9MCY14.
“The main support came from decreasing provisioning for Non Performing Loans (NPLs),” said Azeem. The provision has declined by 82 percent YoY to Rs 101 million from Rs 560 million mainly due to drop in advances as ADR reduced to 37 percent from 43 percent during Sep-14.
Another reason for the low provision could be improvement in the bank’s recovery of bad debts,” he added.
Azeem said the bank’s interest earned and commission and brokerage income declined by six and 18 percent (YoY), respectively, in 9MCY14. Similarly, he said, the KASBB’s NPLs have reduced by eight percent to Rs 10.8 billion from Rs 11.7 billion during 9MCY14.