Press Release

JCR-VIS Reaffirms Entity Rating of Silk Bank Limited

Karachi, June 30, 2017: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Silk Bank Limited (Silk) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 30, 2016.

The ratings take into account strengthening of operations of the Bank in 2016 resulting in improvement in key performance indicators. Silk posted an operating profit in 2016 vis-à-vis an operating loss in 2015. Improvement in operating profitability was supported by reduction in deposit cost, volumetric growth in earning assets and higher fee based income while increase in administrative expenses remained within manageable levels. Overall profitability was also supported by provision reversals and capital gains. Going forward, operating profitability is projected to increase with growth in earning assets and reduction in OREO. However, quantum of overall profits may vary with capital gains on OREO and provisioning charges on financing portfolio.

Corporate portfolio continues to represent the major portion of financing portfolio with noticeable growth witnessed in the ongoing year. Going forward, self-liquidating short term and trade related (LCs, guarantees) exposures are planned to be undertaken while gradual run-off of term loans is planned. Select corporate clients from sugar, leather and rice sectors may result in asset quality pressures. Consumer and SME segment will remain growth areas for the bank. Net infection in the portfolio was reported lower at 2.4% (2016: 2.7%; 2015: 5%) on account of recoveries, conversion to OREO and write-offs. While declining on a timeline basis, Non-Earning Assets (NEAs) remain sizeable in relation to total assets and bank’s own equity. Two major NEAs have been deployed in earning avenues in 2016 which will support profitability of the Bank.

Silk had an asset base of Rs. 135.0b (2015: Rs. 133.1b) at year-end’2016 and operates through a network of 88 branches. Branch expansion is planned in the ongoing year with focus on low cost (smaller & efficient branches) & current account centric branches. Deposit base of the Bank has crossed Rs. 100billion as of mid-June’2017 with growth noted in the proportion of CASA deposits. However, CASA ratio of the Bank is lower vis-à-vis peers. Moreover, depositor concentration is on the higher side. With projected reduction in OREO & corporate lending portfolio and growth in core deposits, depositor concentration levels are projected to decline going forward. Liquidity indicators of the Bank will continue to be tracked by JCR-VIS, going forward.

Tier-1 and overall Capital Adequacy Ratio (CAR) of the Bank was reported at 9.46% (Regulatory Requirement: 8.15%) and 10.67% (Regulatory Requirement: 10.65%), respectively, at year-end’2016. Silk is in the process of issuing a Basel 3 compliant Tier-2 instrument in the ongoing year which the management expects will allow the Bank to comply with increasing regulatory requirements. Quantum of future profits and quality of exposures will be important determinants for compliance with future capital requirements.

For further information on this rating announcement, please contact the undersigned (Ext: 306) at (+92-21) 35311861-70 or fax to (+92-21) 35311872-3.


Faryal Ahmad Faheem
Deputy CEO


Applicable rating criterion: Commercial Banks Methodology - November 2015

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 June 30, 2017 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.