Following its announcement of setting up a wholly owned Islamic Banking subsidiary last month, MCB Bank (MCB) today announced that the bank has reached an agreement with majority shareholders of Burj Bank Limited (BBL) to invest in new and existing shares of the Islamic Bank. We see MCB’s proposed investment in BBL as an indication of the bank’s intention to fully penetrate into the Islamic Banking industry, currently growing at a decent pace, at a time where conventional banking business is slow. As per SBP’s Islamic Banking Bulletin, profitability of Islamic banking industry grew by 42%QoQ in 3Q2013.
As per the details conveyed by MCB in a notice to the stock exchange, the investment (subject to regulatory approvals from the State Bank of Pakistan (SBP) and Securities Exchange Commission of Pakistan (SECP) is likely to make MCB the majority shareholder of the Islamic Bank with ~55% stake. The investment by MCB is also likely to cater to meeting the Minimum Capital Requirement (MCR) of BBL, set by the State Bank of Pakistan at Rs10bn. BBL’s paid up capital as of September 2013 stands at Rs8.2bn.
As of September 2013, BBL’s deposit base stands at Rs34bn (4.4% of total Islamic Banking deposits). Meanwhile BBL’s Net Islamic Financing & Investments stand at Rs38bn contributing 5.4% to the industry’s total assets. Currently, BBL is the smallest Islamic bank in terms of branch network amongst the five pure Islamic Banks in Pakistan consisting of 75 branches across Pakistan. As per September 2013 accounts, BBL’s book value stands at Rs6.9 per share.