KARACHI, Feb 22: National Development Leasing Corporation (NDLC) proposes to amalgamate business with International Finance Investment & Commerce Bank (IFIC Bank) of Bangladesh, which would go to create, ‘a scheduled bank in Pakistan’, the title of which remains undisclosed.

An announcement by Mubashir A. Akhtar, chief executive of NDLC did not identify the other partner to the deal but simply said that the company had entered into an agreement with “a foreign bank operating in Pakistan under which it is expected that NDLC and the Pakistan branches of such foreign bank will be amalgamated.”

The CE said that the amalgamated entity was expected to be licensed to operate as a scheduled bank in Pakistan. “We have received an ‘in principle no objection’ from the State Bank of Pakistan to such proposed amalgamation,” the NDLC chief said.

Market sources told Dawn that NDLC, which had earlier informed the shareholders in September last year that it was “seeking to expand the scope through a meaningful acquisition of an existing financial institution,” had now perhaps found the perfect match in the Bangladesi bank.

IFIC Bank Limited with total assets at Tk 20,633 million is headquartered at Dhaka. The bank maintains 52 branches within Bangladesh but surprisingly no overseas branches, except the two in Pakistan: one on I.I Chundrigar Road in Karachi and the other at Bank Square in Lahore. On December 31, 2000, the IFIC Bank branches in Pakistan held Rs1,152 million in deposits and Rs1,844 million in total assets. The branches had returned combined profit of Rs30 million for the financial year 2000.

Mr. Mohammad Abdullah, General Manager for overall affairs of Pakistan operations, when contacted by Dawn declined to confirm or deny the development, saying that at the time he was not in a position to “disclose anything”.

NDLC established in 1984 has built up an equity base of Rs1,167 million and its balance sheet footing stood at Rs4,902m on June 30, 2002. It operates through six branches, located at Karachi, Lahore, Islamabad, Faisalabad, Hyderabad and Peshawar.

For the year ended June 30, 2002, NDLC had posted loss of Rs82 million, which the company said was the first red ink on its balance sheet in the 18-year history. The loss of 2002 had mainly to do with provisioning of staggering sum of Rs118 million against clients who were in default. The company argued that it had taken the prudent step to recognise weaknesses inherent in its lease portfolio.

On Wednesday, February 19, NDLC also released its half year to end-December 2002 figures, posting an after-tax profit of Rs37.5 million, up from Rs25.6 million in the corresponding period of 2001. The company was seen to have made provision of another huge sum of Rs117 million “for lease losses and doubtful recoveries” during the half year. Shareholders would be tempted to ask management at the next annual general meeting, how much more would have to be given up before the lease portfolio becomes sparkling clean.

Six leasing companies have so far gone through mergers in the sector, reducing the total number of listed leasing companies from 34 to 28. The NDLC chief clarified that the proposed amalgamation between NDLC and the ‘foreign bank’ was subject to completion of formalities including, but not limited to, seeking appropriate approval of shareholders in NDLC as well as that of the foreign bank. But when the deal goes through it would possibly be the third such merger between a leasing company and a bank. Earlier, Pakistan Industrial Leasing Corporation (PILCORP) had tied the knot with Trust Investment Bank and Atlas Lease had joined hands with the group’s own Investment Bank.

It does seem to make sense for a leasing company to amalgamate business with a bank, for otherwise they are in double jeopardy. For one, they have to seek costly debts from banks to maintain the flow of funds and then to compete with such banks that offer lease financing facilities or have a wholly owned leasing subsidiary. Since banks are at an advantage due to their low cost of funds, it is becoming increasingly difficult for leasing companies to seek out fresh business and margins are understood to be eroding.