Press Release

JCR-VIS upgrades short term rating of The Bank of Khyber

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Karachi, June 28, 2013: JCR-VIS Credit Rating Company Limited (JCR-VIS) has maintained the medium to long-term entity rating of The Bank of Khyber (BoK) at ‘A’ (Single A). Short-term rating has been upgraded from ‘A-2’ (A-Two) to ‘A-1’ (A-One). Outlook on the assigned rating is ‘Stable’.

The assigned ratings take into account the implicit financial support from the primary sponsor - Government of Khyber Pakhtunkhwa (KPK) - which has a stake of 70% in the bank. Support from KPK is evident in the form of equity injection, when needed, and placement of sizeable deposits with the bank. Furthermore, since 2012, KPK is exclusively availing financing for commodity operations from BoK. Internal capital generation has further augmented capitalization levels and capital adequacy ratio at current level provides considerable cushion for growth. Bulk of fresh deposits mobilized was channeled towards liquid investments. Liquidity profile of the institution is considered sound.

The bank has enhanced its outreach by expanding its network to 79 branches and plans to achieve around 90 branches by the end of 2013. The number of Islamic banking branches has also increased; deposit cost from this avenue is relatively low while contribution from Islamic banking business to overall profitability is sizeable. The bank still has reliance on large ticket deposits from KPK and its related agencies. However, concentration related risk is mitigated by stability in such deposits held by the bank over time. The efficiency of newly established branches is projected to improve over time as the branches mature; this is considered important to enable wider access to deposits and achieve sustainable growth in cost effective funding.

Growth in advances was mainly manifested in corporate loan book. A sizeable quantum of loan portfolio comprises commodity financing to provincial government. Going forward, in addition to growth in corporate segment, the bank intends to increase commercial and SME lending. JCR-VIS will continue to monitor quality of loan portfolio on an on-going basis.

The management has initiated business process improvement exercise alongwith implementation of core banking application. Timely implementation of system is considered important for maintaining sound internal controls, particularly in context of growing business volumes. Position of Managing Director is vacant for some time. With the induction of new MD, strategic plan, course of action for network expansion and business growth will be evident over time. Ability of a professional management team to design and implement a well articulated business strategy under the guidance of the Board of Directors is considered an important element in the overall governance framework instituted at the bank.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA at 021-35311861-70 or Mr. Maimoon Rasheed at 042-36610681-84.

Javed Callea

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 2013 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .