Press Release

VIS finalizes rating of Basel III compliant additional Tier 1 instrument by Habib Bank Limited

Karachi, December 15, 2022: Upon review of executed legal documents, VIS Credit Rating Company Limited (VIS) has finalized the rating of ‘AA+’ (Double A Plus) for Habib Bank Limited’s (HBL’s) Basel III compliant additional Tier-1 (ADT-1) TFC. Outlook on the assigned rating is ‘Stable’. Medium to long-term rating of AA+ denotes high credit quality with strong protection factors; risk is modest but may vary slightly from time to time because of economic conditions. The assigned rating to ADT-1 instrument incorporates VIS standard notching criteria for Basel III compliant ADT-1 instruments issued by AAA rated Banks. Previous rating action was announced on October 4, 2022.

HBL has issued (planned in tranches) a Basel III compliant fully paid-up, privately placed, subsequently listed under Debt Securities Listing Regulations (DSLR), perpetual, unsecured, subordinated, non-cumulative and contingent convertible debt instrument in the nature of Term Finance Certificates (“TFCs") amounting up to Rs. 10.0b (inclusive of Green Shoe Option of Rs. 5.0b). The issue proceeds will contribute towards the bank’s additional Tier-1 (ADT-1) capital and will be utilized towards enhancement of the bank’s business operations. In terms of priority of claims, HBL’s ADT-1 instrument will rank ahead of claims of ordinary shareholders but below the bank's senior creditors, including depositors, and Tier-2 subordinated debt instruments but will rank pari-passu with the earlier ADT-1 instrument of Rs. 12.4b issued in 2019.

VIS has assigned entity ratings of AAA/A-1+ (Triple A/A-One Plus) to HBL indicating highest credit quality. 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. Entity rating incorporates asset quality indicators of HBL, which compare favorably to the ‘Large Banks’ median. 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. While HBL’s domestic profitability depicted healthy growth, overall profitability indicators remained stressed in the ongoing year on account of HBL’s international operations, leaving room for further improvement. 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-Sep’22, HBL’s CAR and Tier I CAR receded and fell below the ‘Large Banks’ median. Issuance of ADT-1 instrument in tranches will support business growth, while maintaining the CAR at the required levels.

For further information on this rating announcement, please contact Ms. Asfia Aziz (Ext: 212) or the undersigned (Ext: 207) at 92-21-35311861 or email to

Sara Ahmed

Applicable rating criteria: Commercial Banks - June 2020
Rating the Issue- November 2021

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 .