Press Release

JCR-VIS Reaffirms Entity Ratings of The Bank of Khyber at A/A-1

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Karachi, June 30, 2015: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of The Bank of Khyber (BoK) at ‘A/A-1’ (Single A/A One) with ‘Stable’ Outlook.

The ratings take into account more than two thirds holding of the Government of Khyber Pakhtunkhwa (KPK) in BoK. The bank continues to receive implicit support from Government of KPK which has placed sizeable portion of deposits with the bank. While this has resulted in high concentration, given the quantum of individual deposits, these have remained relatively stable over the years. Moreover, the bank carries sizeable liquid assets on its balance sheet, which provides cushion to manage withdrawals. KPK has also been exclusively availing financing for commodity operations from the bank. Capitalization indicators of the bank are considered sound providing room for growth in future.

BoK offers both conventional and Islamic banking products. In recent years, the bank has expanded within the domain of Islamic banking. Growth in Islamic financing has remained relatively slow while focus has remained primarily on liability side. Presently, BoK is operating with a total of 116 branches with 54 Islamic banking branches and plans to open 14 new (including 12 Islamic) branches in the on-going year. Given that most banks have expanded their outreach in recent years, this is considered necessary to maintain the bank’s positioning in the market.

Deposit mix of Islamic banking features lower concentration vis-à-vis conventional banking; moreover, cost of Islamic deposits also compares favorably on the back of sizeable proportion of CASA. Overall concentration in deposits has trended upwards over time; the management plans to rationalize its deposit mix by increasing share of retail segment. With focus on CASA deposits to be mobilized from the private sector in current year along with declining interest rate scenario, cost of deposits has witnessed some reduction.

The growth in advances was primarily manifested in seasonal commodity Islamic financing. A large portion of loan portfolio continues to comprise corporate lending. The bank has witnessed slight weakening in asset quality; though the same remained within manageable limits.

Investment portfolio of the bank continued to be dominated by government securities. To the extent of the bank’s holding of long term government paper with fixed rates, the bank may be able to sustain the impact of current low interest rate environment on earnings. However, once the existing PIB holdings begin to mature, the bank may encounter pressure on spreads if the low interest rate environment persists.

The bank has inducted a new Managing Director having considerable experience in the financial sector. Strategic plan and course of action for business growth will be unfolded in due course of time.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA or Mr. Maimoon Rasheed at 021-35311861-70 and 042-35723411-13, respectively, or fax to 021-35311873.

Javed Callea

Applicable Rating Criteria: Commercial Banks

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 2015 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .