IMF urges swift action to recapitalize four Pakistani banks
The International Monetary Fund (IMF) has emphasized the need
for prompt measures to recapitalize four banks, cautioning that delays in
implementing necessary reforms, especially for undercapitalized banks, could
pose risks to the stability of the country's financial sector.
The IMF presented a detailed Staff Report during the July 12
meeting of its Executive Board, seeking approval for a $3 billion Stand-By
Arrangement (SBA). The report highlighted that the full impact of the economic
downturn is yet to unfold, despite the apparent stability of the banking sector
at present.
While the IMF didn't specifically name the banks in question in
the 120-page report, market analysts suggest that three of the undercapitalized
banks belong to the private sector, including Silkbank Ltd and Summit Bank Ltd,
while the fourth is SME Bank Ltd from the public sector.
In order to maintain financial stability, the IMF urged the
State Bank of Pakistan (SBP) to expedite the recapitalization process by
leveraging its existing powers.
The SBP assured the IMF that it would take necessary action,
including resorting to "resolution" for the two undercapitalized
private-sector banks, presumably Silkbank and Summit Bank, if they fail to
achieve full capitalization. However, the resolution process has been delayed
due to ongoing negotiations with potential investors, as stated by Pakistani
authorities.
Summit Bank, in particular, received a fresh equity injection of
Rs10bn from a UAE investor in April, intending to address its capital adequacy
issues. On the other hand, Silkbank has been seeking investors for years, and
MCB Bank recently initiated due diligence for a potential investment.
The SBP committed to resolving one public-sector bank, likely
SME Bank, after the cabinet approved its removal from the privatization list
and decided to liquidate it.
Furthermore, the central bank of Pakistan is working with the
shareholders of a mid-sized public-sector bank, which faced undercapitalization
in 2022-23 due to credit and mark-to-market losses, with the aim of restoring
its capital compliance by the end of September 2023.
Source: Dawn