Press Release

VIS Reaffirms Entity Ratings of Bank of Khyber

Karachi, June 28, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Bank of Khyber (‘BoK’ or the ‘Bank’) at ‘A+/A-1’ (Single A Plus/A-One). Medium to long term rating of ‘A+' indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of 'A-1' indicates strong likelihood of timely repayment of short-term obligations with excellent liquidity factors. Outlook on the assigned ratings is ‘Stable.’ Previous rating action was announced on June 27, 2023.

The ratings assigned to BoK reflect its shareholding structure as the majority stake is held by the sub-sovereign, the Government of KPK, followed by Ismail Industries Limited. In 2023, BoK’s asset base grew, although at less than industry's asset base growth rate. This growth was primarily reflected in a significant increase in investments, as credit offtake remained slow throughout the sector. Gross Advances (GA) of BOK reduced in 2023, in contrast to the industry's average growth of 3.7%, due to cautious approach followed by BoK in view of prevailing economic conditions, mainly affecting the corporate segment, which still remains the largest part of the loan book. Most large exposures (over 5% of common equity) represent government exposures, limiting the otherwise high credit risk in the portfolio.

The overall reduction in GA together with increase in Bank’s Non-Performing Loans (NPLs), resulted in a higher Gross Infection (GI) Ratio. Starting in 2024, BoK transitioned to IFRS-9 as directed by the State Bank of Pakistan (SBP). Stage 3 assets were largely comparable to NPLs reported as at Dec’23. However, with higher ECL estimates as per IFRS-9, provisioning coverage against stage-3 assets as well as higher cover against stage-1 and stage-2 assets, significantly raised loss buffers held by the Bank, against potential asset losses in future. Net NPLs to Tier 1 Equity was reported much lower at the end of Mar’24.

With about 85% of the investment portfolio in floating-rate securities, and a weighted average duration of the portfolio at 0.25 years, market risk is minimal. BoK's liquidity profile improved, as evidenced by a substantial Liquid Assets to Deposits and Borrowings Ratio (LADB) coverage at the end of the first quarter of 2024. The Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) remained significantly above regulatory requirements.

In 2023, the Bank's profitability improved, driven by higher net markup and non-markup income. Despite increased administrative expenses mainly due to inflationary pressures and growth initiatives, the efficiency ratio improved. The short to medium-term outlook on profitability remains stable, supported by anticipated short-term expansion in the spread, growth in non-interest income, and potential investment gains. By Dec’23, the Capital Adequacy Ratio (CAR) increased to 18.3%, well above regulatory requirements. With tier-1 equity accounting for approximately 99.9% of eligible capital, the quality of capital is considered very sound. Any upgrade to ratings will require improvement in asset quality indicators and stronger credit risk management.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.


Applicable Rating Criteria:

Financial Institutions
https://docs.vis.com.pk/Methodologies%202024/Financial-Institution-v2.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .