Press Release

VIS reaffirms HBL’s ‘AAA’ entity & Tier-2 TFC ratings while rating of ADT-1 instrument is reaffirmed at ‘AA+’

Karachi, June 30, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Habib Bank Limited (HBL) at ‘AAA/A-1+’ (Triple A/A-One Plus). The rating of existing Basel III compliant Tier 2 TFC of HBL (issued in February 2016) has been reaffirmed at ‘AAA’ (Triple A) while rating of HBL’s Basel III compliant additional Tier-1 (ADT-1) TFC (issued in September 2019) has been reaffirmed at AA+ (Double A Plus). Outlook on all the assigned ratings is ‘Stable’. Previous rating action was announced on June 28, 2019.

The assigned ratings incorporate HBL’s position as the largest commercial bank in the country (asset base crossed 3 trillion in the outgoing year) with systemic importance, strong domestic franchise and diversified operations. Ratings also reflect strong financial profile as evident from robust liquidity, adequate capitalization and sound asset quality indicators. However, elevated exposure to credit risk due to significant impact of Covid-19 on already weak macroeconomic indicators may impact asset impairment ratios. Despite higher provisioning charges over the rating horizon, VIS expects HBL’s earnings profile to improve on the back of expected capital gains and normalization of non-recurring expenses. Profitability indicators are expected to align with rating benchmarks over the rating horizon. The ongoing Covid-19 pandemic has accelerated the pace of digital transformation. HBL’s strategy over the last few years of enhancing digital presence and focusing on digital customer acquisition will be a source of competitive advantage for the Bank.

Overseas assets represent around one-tenth of total assets. During 2019, majority of core branches have seen a turn-around and return to profitability. Moreover, as part of a deliberate strategy, exit from 2 non-core locations was undertaken in 2019 while similar strategy is planned to continue in 2020. This along with closure of New York branch in 1Q20 is expected to improve core profitability from international operations. International strategy entails HBL taking advantage of its unique footprint, and facilitating global trade and payment flows in select growth corridors. Growth in international operations is targeted from Middle East and China. Focus on improving compliance systems, processes, governance and staffing has continued during the review period.

After depicting strong double digit growth in advances during 2015-2018, pace of credit growth slowed down in 2019 but remained higher vis-à-vis peer banks. Resultantly, proportion of advances in total assets has grown over the last 2 years. Asset quality indicators remain sound while provisioning coverage has been consistently maintained on the higher side. However, exposure of the banking sector to credit risk remains heightened. Regulatory relief measures undertaken by SBP to promote financial stability, support businesses, ensure continued credit supply to the economy and maintain confidence in the financial system have been received positively and are expected to delay the impact of prevailing headwinds on portfolio asset quality indicators. Our credit impairment expectations are conservative, albeit there is a probability of deviation from expectations; downside risk is elevated, amidst an uncertain economic environment. Given the ongoing challenging operating environment and HBL’s prudent risk management policy, a general provision policy is being evaluated at a portfolio level which is considered to have heightened credit risk considering the current stressed situation resulting from Covid-19 outbreak.

The assigned ratings incorporate the HBL’s robust liquidity profile as evident from sizeable customer base, cost-effective deposit mix and strong liquidity buffer in terms of liquid assets to deposits and borrowings. Overall capitalization indicators are adequate with HBL’s strong focus on maintaining and enhancing capital buffers as reflected by a conservative dividend payout policy and efforts to optimize risk weighted assets growth being a key rating driver. In this regard, further strengthening of CAR buffers is considered important. In line with expectations, profitability indicators continued to deviate from rating benchmarks during 2019 primarily due to higher cost in New York, rupee devaluation and regulatory initiatives. Going forward, sizeable exposure to fixed rate PIB portfolio along with aggressive re-pricing of deposits is expected to partly offset pressure on spreads (over the medium term) due to sharp decline in interest rates (625bps since the start of the calendar year 2020). Ratings remain dependent on maintaining asset quality indicators, strengthening capital buffers and improving earnings profile in line with rating benchmarks.

For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext. 306) at 021-35311861-70 or email at

Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Commercial Banks Methodology -March 2018

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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