KARACHI: The State Bank of Pakistan (SBP) has given final approval to Silkbank for the issuance of right shares, which will enable it to comply with regulatory requirements of minimum capital and capital adequacy ratio.

In a stock filing on Thursday, Silkbank said it has already received the approval from the Securities and Exchange Commission of Pakistan (SECP) for the issue of right shares worth Rs10 billion. The bank will issue over 6.4 billion right shares at Rs1.56 per share, reflecting a discount of Rs8.44 per share.

In most cases of right share issues, cash-starved companies give their existing shareholders a right to purchase newly issued shares of the company at a discount to the share price prevailing in the stock market. Often dubbed as seasoned equity offering, right share issues allow cash-strapped companies to raise new capital instead of borrowing from external sources.

Silkbank has already received Rs2 billion as advance against shares in the subscription account, assuring the completion of the issue and increasing the capital base of the bank to Rs16 billion.

The SBP has given exemption to Silkbank to meet the minimum capital requirement (Rs10 billion) and capital adequacy ratio – 10% of the bank’s risk-weighted credit exposures – until June 30.

The federal government put KASB Bank under a six-month moratorium last November because it did not meet the capital adequacy ratio requirement, an indicator that measures the soundness of a banking institution and reflects the level of protection its depositors enjoy.

Later on, KASB Bank ceased to exist after merging with Bank Islami in May.

Other than KASB Bank and Silkbank, Summit Bank also had investors and regulators worried about its capital inadequacy. But the bank met its capital adequacy requirements through a right share issue at Rs10 per share last December.

Silkbank posted a net profit of Rs49.8 million in the first quarter of 2015, down 25.4% from the January-March quarter of 2014.

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