What to make of Bank Asia's plan to acquire Bank Alfalah

Bank Asia's proposed acquisition of the Bangladesh chapter of Karachi-based Bank Alfalah seems to be a good deal, considering the financial performance of the latter over the years.

Bank Alfalah Bangladesh's net interest income grew 34 per cent year-on-year to Tk 669 million in 2023, while profit soared 200 per cent to Tk 434 million last year compared to the previous year.

It deserves praise when it comes to asset quality. As of 2023, the foreign lender disbursed loans worth Tk 16.11 billion via the seven branches that it has been operating in Bangladesh. Only 1.87 per cent of the loans have been identified as bad loans, according to the latest data of the Bangladesh Bank.

Bank Alfalah Bangladesh's assets amounted to Tk 31.43 billion until December 2023, while liabilities Tk 25.24 billion.

The financial health indicators of Bank Alfalah promise a boost to the earnings of Bank Asia if the acquisition plan is executed.

Md Moniruzzaman, managing director & chief executive officer of Prime Bank Securities, said that whether the investment would bring positive outcome would depend on the deal price.

Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh, however, sees signs of concern in Bank Alfalah's plan to leave Bangladesh.

"When Bangladesh needs more foreign banks, Bank Alfalah's exiting the country is worrisome."

Pointing out the fact that both the banks have strong financial health, Mr Mansur said, "Bank Asia's acquisition of Bank Alfalah may be an attempt to escape potential forced merger with any weak bank."

The lender is going for the acquisition at a time when the banking sector has been speculating possible mergers between good and bad performers.

The central bank has suggested merger as a way to reform and discipline the financial industry.

However, acquisition of Bank Alfalah by Bank Asia is not part of the government move, said Anisuzzaman.

The acquisition proposal is under discussion although the central bank last week officially announced that it would not accept any new bank merger plan for now after receiving five proposals.

Mir Ariful Islam, managing director of Sandhani Asset Management, said Bank Alfalah might sell the business at a premium. "Bank Asia and its investors will be benefited in the future if it manages to negotiate a fair price."

Bank Asia can put to use the lessons learnt in previous acquisitions to make the deal a success.

"We have had experiences taking over foreign banks' local operations. Acquiring Bank Alfalah's Bangladesh operation is similar to that," said Deputy Managing Director of Bank Asia SM Anisuzzaman.

In 2001, Bank Asia acquired the Dhaka chapter of Canada-based Bank of Nova Scotia, the first of its kind in the banking history of Bangladesh.

Later in the same year, Bank Asia took possession of the Bangladesh operation of Muslim Commercial Bank, a renowned Pakistani Bank.

The deal of Bank Alfalah is subject to compliance with all applicable laws and regulations and obtaining necessary regulatory approvals, Bank Asia said in a stock exchange filing on Sunday.

The board of Bank Asia has already given permission to the management to complete the necessary formalities.

After Bank Alfalah's board approval, the Bank Asia board on Thursday approved, in principle, the negotiated acquisition of the assets & liabilities of Bank Alfalah's Bangladesh operation.

Bank Alfalah Bangladesh

Bank Alfalah started its operations in Bangladesh in 2005 by acquiring the Dhaka branch of Shamil Bank of Bahrain. Now it has five branches in the capital, one in Chattogram and one in Sylhet.

Bank Alfalah, one of the largest banks in Pakistan, has a network of more than 1,024 branches in more than 200 cities in the country, and an international presence in Afghanistan, Bangladesh, Bahrain, and the UAE.

Bank Asia's financial

performance

Bank Asia's total disbursed loans were worth Tk 289.6 billion, of which only 5.51 per cent was non-performing loans as of December 2023, according to Bangladesh Bank data.

For the first nine months of 2023, the bank posted more than 22 per cent year-on-year growth in profit to Tk 3.82 billion.

Bank Asia had assets equivalent to Tk 477.82 billion and liabilities Tk 447 billion until the end of September last year.

The bank will hold a board meeting on Sunday (April 28) to consider, among others, audited financial statements for 2023. The meeting may recommend dividends for the year.

In 2022, the bank paid a 15 per cent cash dividend.

As a major facilitator of financial inclusion in the country, Bank Asia pioneered agent banking a decade ago.

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