BankIslami has decided to sign a memorandum of understanding (MoU) for acquiring Emirates Global Islamic Bank Limited (EGIBL) Pakistan. The bank informed its shareholders on Monday that it had decided to sign a MoU with the EGIBL for acquisition or merger after due diligence. "The Board of Directors of BankIslami has decided to enter into a MoU with EGIBL Pakistan in relation to a proposed acquisition or merger in such a way that BankIslami remains the surviving entity," said the BankIslami.

Emirates Islamic Bank has started its operations in Pakistan few years back with a vision of becoming the Islamic bank of preference, but failed to survive because of declining banking industry in the country. The EGIBL started operations in February 2007 with sponsors from the United Arab Emirates and Saudi Arabia, and a business model to deliver Shariah-compliant financial instruments through an urban and rural branch network.

The bank's network comprises of 60 on-line branches in 36 cities and towns.

"The transaction is subject to satisfactory due diligence, regulatory consents and execution of a bidding agreement between the parties," said BankIslami. It added that due diligence would start shortly subject to necessary approvals.

Senior bankers said small banks already in trouble but the small Islamic banks were particularly the victim of slow economic growth and declining banking industry.

They said the Islamic banks had no option to invest in the government treasury bills like the conventional banks. The State Bank did not provide enough opportunity to invest in Sukuk (Pakistan Investment Bonds).

Bankers said the small banks were bound to raise costly deposits while they had little opportunity to invest. The conventional banks especially big banks were in good position to get deposits at lower rates while their investment in treasury bills enable them to continue to earn profit despite low demand by the private sector.
The State Bank in its report noted that small banks were facing tough time and many banks would be either merge or would be sold.

Analysts said the banks would remain under pressure during 2010 since the economy had not shown any signs of recovery. They said despite a higher gross domestic product (GDP), the economy would need time to return to the tracks it adopted three years back.