Press Release

JCR-VIS Reaffirms AAA ratings of Habib Bank Limited

Karachi, June 30 2017: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Habib Bank Limited (HBL) at ‘AAA/A-1+’ (Triple A/A-One Plus). JCR-VIS has also reaffirmed the Basel 3 compliant Tier 2 TFC rating of HBL at ‘AAA’ (Triple A). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on June 30, 2016.
Majority owned by Aga Khan Fund for Economic Development, HBL is the largest commercial bank in the country (market share of 14.1% in domestic deposits) with strong domestic operations and franchise and systemic importance to the domestic financial sector. The bank through its subsidiaries and associates has a presence in the Insurance, Asset Management and Microfinance Sector. Overseas presence was further strengthened through opening of a branch in China in 1Q17 while the bank has taken meaningful strides towards innovation, financial inclusion and further strengthening and upgrading IT infrastructure during 2016.
Broad based growth in financing portfolio was witnessed in 2016 with all key segments (Corporate, Consumer, SME and Agriculture) posting double digit growth. Over the next few years, a significant portion of the growth in advances is targeted through high yielding consumer, agriculture and SME segments while CPEC driven power and infrastructure projects are expected to be the growth drivers in terms of increase in corporate portfolio. Given the bank’s China linkages, HBL is well positioned in this regard. Asset quality indicators of domestic loan book continued to improve while overseas portfolio quality witnessed slight weakening. Stability and control over asset quality indicators will need to be maintained over the rating horizon. Proactive market risk management on the bank’s PIB portfolio, where increase in quantum of PIB holding and duration was witnessed, is considered important.
Liquidity profile of the bank is strong as evident from sizeable, cost effective & granular deposit base and significant liquid assets carried on the balance sheet. New to bank relationships and quantum of current account growth provides a competitive edge and profitability advantage for HBL. As a medium term strategic goal and as part of HBL’s financial inclusion initiative, the bank aims to leverage technology to significantly accelerate customer acquisition.
The equity base of the bank has consistently grown with rate of internal capital generation averaging 10.7% over the last 5 years. However, rate of internal capital generation during 2016 was lower vis-à-vis preceding years. Tier-1 and overall CAR of the Bank remain commensurate with the assigned ratings albeit declining slightly on a timeline basis. In the backdrop of increasing regulatory requirement, HBL’s strong buffer over regulatory CAR is considered important.
Revenue streams are diversified with growth witnessed across all key segments, barring trade commissions. Despite significantly lower capital gains and greater pressure on banking spreads, decline in operating profitability and profit before tax during 2016 was limited. However, cost to recurring income ratio has increased in 2016 vis-à-vis 2015. In the backdrop of forecasted mid-term economic scenario and policy rate regime along with maturity of PIBs and low lending rates due to excess liquidity, spreads and profitability growth of the banking sector are expected to remain under pressure during 2017.

For further information on this rating announcement, please contact the undersigned at (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.


Javed Callea
Advisor

Applicable rating criterion: Commercial Banks Methodology - November 2015

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