Press Release

VIS reaffirms HBL’s Entity & Instrument Ratings

Karachi, June 29, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Habib Bank Limited (‘HBL’ or ‘the Bank’) at ‘AAA/A-1+’ (Triple A/A-One Plus). Rating of HBL’s Basel III compliant additional Tier-1 (ADT-1) TFC (issued in September 2019) has also been reaffirmed at ‘AA+’ (Double A Plus). Outlook on all the assigned ratings is ‘Stable’. Previous rating action was announced on June 30, 2021.

The assigned ratings incorporate HBL’s position as the largest commercial bank in the country and its systemic importance to Pakistan’s financial sector, given its classification as a Domestic - Systemically Important Bank (D-SIB) by SBP. HBL’s strategy over the last few years of enhancing its digital footprint and focusing on digital customer acquisition translates into an added competitive advantage for the Bank, in addition to bolstering its franchise value.

The assigned rating incorporates asset quality indicators of HBL, which compare favorably to the ‘Large Banks’ median. Furthermore, the Bank’s net infection at 0.6% is considered to be adequately low and provisioning coverage is considered adequate. HBL’s liquidity profile derives strength from its sizable branch network and growing branchless banking touchpoints, which translate into a strong ability to raise deposits and maintain market positioning. HBL’s deposit generation ability is also evident from its cost of funding, which was in line with the ‘Large Banks’ median as of 2021. As is the case across the industry, HBL’s liquidity profile also incorporates sizable liquid reserves in relation to deposits and borrowings.

In terms of its investment operations, HBL’s exposure to credit risk is considered very low, given that 91% of the portfolio comprises of sovereign issuances of the Government of Pakistan, which are the highest credit quality in the domestic context. However, given the sizable holding of fixed rate PIBs (26% of the portfolio as of end-Mar’22), the portfolio does depict notable exposure to market risk. Since Mar’22, the prevailing benchmark rate has increased by 400 bps, which would result in a further increase in the deficit on the portfolio.

In line with the industry trend, wherein average benchmark rate prevailing during 2021 was lower than 2020, HBL’s NIM depicted contraction. While HBL’s domestic profitability depicted healthy growth, overall profitability indicators remained stressed on account of HBL’s international operations, leaving room for further improvement. Accordingly, HBL’s RoAA remained on the lower side, trailing the industry and the ‘Large Banks’ median.

Given the continued growth in advances and a sizable depreciation in USD/PKR parity, HBL’s capital adequacy has trended down since our last review. As of end-Mar’22, HBL’s CAR and Tier I CAR receded and fell below the ‘Large Banks’ median. The relatively lower profitability indicators and drop in CAR has been noted. VIS will continue to monitor the same on an ongoing basis.

For further information on this rating announcement, please contact Mr. Arsal Ayub, CFA (Ext: 216) at 92-21-35311861 or fax to 92-21-35311873.

Javed Callea

Applicable rating criterion: Commercial Banks Methodology -June 2020

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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .