Press Release

VIS Reaffirms Entity Ratings of Pak Oman Investment Company Limited

Karachi, June 28, 2024: VIS Credit Rating Company Ltd. (VIS) has reaffirmed entity ratings of Pak Oman Investment Company Limited (‘POIC or the Company’) at ‘AA+/A-1+’ (Double A Plus/A-One Plus). The long-term rating of ‘AA+’ signifies high credit quality, protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. The short-term rating of ‘A-1+’ signifies highest certainty of timely payment; short term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding and safety is just below risk-free Government of Pakistan’s short-term obligations. Outlook on the assigned rating is ‘Stable’. Previous rating action was announced on June 22, 2023.

The rating assigned to POIC are supported by its joint venture shareholding structure, with equal ownership held by the Government of Pakistan (GoP) and the Sultanate of Oman (SO). In Sep’23, S&P upgraded the sovereign rating of Oman from ‘BB’ to ‘BB+’ and in Mar’24, it revised the outlook from ‘Stable’ to ‘Positive’, citing continued reduction in government debt, increased hydrocarbon production, and the SO's fiscal and economic reform initiatives.

Amid challenging economic conditions, the company made disbursements with a cautious approach, in order to manage associated risk. Key sectoral exposures included textiles, power, transport, storage, and communication. Given the small size of the lending portfolio, concentration has remained high. The management intends to reduce concentration over the next 1-2 years. During FY23, the company adopted IFRS-9. The provisioning coverage thereby increased significantly and resultantly net infection improved. Maintenance of asset quality remains a key rating driver. The investment portfolio enhanced significantly, with the increase primarily manifested in government securities, i.e., PIBs & T-bills, indicating low credit risk. The company enhanced repo borrowings to acquire floating rate PIBs, which comprised majority of the PIBs portfolio at end-FY23, mitigating the market risk. However, the company recorded substantial mark to market deficit on government securities at end-1QFY24 that is expected to subside with decrease in interest rates and reduced time to maturity.

The assigned ratings take comfort from overall higher profitability indicators primarily due to higher interest rates and alleviation of pressure on mark-up spreads. Despite significant increase in operating expenses, efficiency ratio improved considerably in FY23 on the back of substantial increase in recurring income. Liquidity profile in terms of adjusted liquid assets as a proportion of deposits and borrowings decreased, albeit remained sound. While total deposits stood slightly lower due to some withdrawal from banking companies and private sector, concentration of deposits improved to a certain extent. POIC is set to launch Islamic banking services, with the licensing process in its final stages, pending requisite approvals. POIC plans to begin Islamic deposit mobilization by end-FY24, which is expected to enhance its funding base

Given lower Tier1 equity and higher risk-weighted assets (RWAs) mainly due to significant increase in market risk related RWAs, Capital Adequacy Ratio (CAR) decreased considerably, though remained above the minimum regulatory requirement. Simultaneously, leverage ratio (LR) witnessed a declining trend at end-1QFY24; improvement in the same is desirable.

For further information on this rating announcement, please contact at 042-35723411-12 or email at info@vis.com.pk


Applicable Rating Criteria:
Government Supported Entities: https://docs.vis.com.pk/docs/Meth-GSEs202007.pdf

Financial Institutions Rating: https://docs.vis.com.pk/Methodologies%202024/Financial-Institution-v2.pdf

Rating Scales & Definitions: 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 .