Press Release

VIS Reaffirms Entity Ratings of Habib Bank Limited

Karachi, June 28, 2024: 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). Medium to long term rating of ‘AAA' indicates highest credit quality; the risk factors are negligible, being only slightly more than for risk-free Government of Pakistan’s debt. Short-term rating of 'A-1+' indicates strongest likelihood of timely repayment of short-term obligations with Outstanding liquidity factors. Outlook on the assigned ratings is ‘Stable.’ The rating of HBL’s Basel III compliant additional Tier-1 (ADT-1) TFCs (issued in September 2019 and December 2022) have also been reaffirmed at ‘AA+’ (Double A Plus). The medium to long-term rating of ‘AA+’ denotes high credit quality, protection factors are strong; risk is modest but may vary slightly from time to time because of economic conditions. Previous rating action was announced on June 27, 2023.

The assigned ratings reflect HBL’s position as Pakistan’s leading commercial bank, its strong franchise, and its systemic importance in the financial sector. A diversified deposit base with no single depositor exceeding 2% of total deposits, underscored the Bank's strong market access. HBL maintained ample liquid reserves relative to its deposits and borrowings, and the liquidity ratios remained well above regulatory requirements.

In 2023, HBL’s asset base grew, with an increase in investment holdings absorbing most new liquidity as advances grew only modestly and in line with industry trends. Corporate segment dominated the advances portfolio, with an increase in reported Non-Performing Loans (NPLs) reflecting challenging economic conditions and new non-performance, mainly in the corporate portfolio. However, overall credit risk remained contained, with larger exposures primarily involving public sector entities and established private companies. With the implementation of IFRS-9 in 2024, Expected Credit Losses have been set aside, beefing up reserves against potential non-performance. Consequently, HBL maintains strong provisioning coverage and a low net infection rate.

HBL's investment portfolio is characterized by a very low risk profile, with the majority comprising sovereign issuances. Floating rate Pakistan Investment Bonds (PIBs) dominated the investment portfolio, offering protection against market risks with the weighted average duration of the PIBs portfolio being less than a year. Going forward, the Bank plans to increase duration by increasing investments in fixed PIBs given the expected easing in monetary policy.

In a high policy rate environment, HBL saw wider Net Interest Margins (NIM) in 2023. Profitability gains were moderated by increasing non-markup expenses, which rose on the back of inflationary pressures. HBL’s Profit before provisions and taxes (PBPT) substantially increased, supported by gains from both spread and non-spread income. The outlook for profitability in 2024 is positive, with further anticipated increase in markup-based income.

As of Dec’23, HBL's Capital Adequacy Ratio (CAR) rebounded, driven by higher retained earnings and revaluation reserves, sustaining capitalization levels above regulatory requirements. Further gains in profitability anticipated in the current year, compounded with continuing slow growth in risk assets due to market conditions, will allow capital buffers to remain strong.

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 .