Press Release

JCR-VIS assigns initial entity ratings of A/A-2 with Rating Watch Developing - Status to House Building Finance Corporation Limited

Karachi, July 21, 2010: JCR-VIS Credit Rating Company Limited has assigned initial medium to long-term entity rating of ‘A’ (Single A) and short-term rating of ‘A-2’ (A-Two) to House Building Finance Corporation Limited (HBFCL).

Established in 1952 under an act of Parliament, HBFCL was incorporated under the Companies Ordinance in 2007. The ownership of HBFCL is jointly held by the Government of Pakistan (GoP) and the State Bank of Pakistan (SBP). HBFCL also has federal government guarantee on the credit lines obtained from SBP that form the pre-dominant source of its funding.

The assigned ratings have been placed under ‘Rating Watch-Developing’ status on account of the on-going restructuring process. The organization is actively pursuing a recapitalization plan with the concerned authorities, which entails debt to equity swap of the existing SBP credit lines. This would allow the institution to meet the regulatory minimum capital requirement (MCR) and also improve its profitability profile and capitalization levels vis-a-vis current level of un-provided NPLs.

The incorporation of HBFCL has also marked several infrastructure enhancements, including the appointment of a professional management team and improvement in controls systems/governance standards and strengthening of underwriting standards. In addition to this, the organization structure is also being revamped and processes are being realigned based on best practices in the financial industry. Customer Satisfaction Survey has also been carried out for the first time in the history of the corporation, which would serve as a basis for improvement in customer service standards.

While there has been notable progress in recovery against delinquent exposures, overall NPLs have not reduced materially on account of fresh accretion of NPLs, mostly pertaining to loans extended prior to 2009. The management is making earnest efforts for further improvement in collection mechanism. In addition to weak underwriting standards in the past, portfolio quality has also been affected by deteriorating economic conditions, which has adversely affected the company’s target clientele. In line with its objective, HBFCL is largely serving the small and micro housing segment for construction / purchase as well as renovation of housing units. Given the significant housing shortage currently faced by the country, there is significant room for future growth and HBFCL plays a key policy role in this respect.

On account of notable recoveries and conservative lending stance, HBFCL has been able to accumulate substantial liquid reserves, which are highest in its history. The accumulation of liquidity is also supported by the receipt of outstanding claims of about Rs. 2 billion from the government. The liquidity has been invested in profitable avenues, largely comprising risk free government securities.

The recently announced Voluntary Separation Scheme (VSS), to be funded by Federal Government grant, would not only help in rationalizing operational cost but also provide room to induct more professionals, which may lead to further improvement in efficiency. JCR-VIS believes that timely completion of the restructuring process is necessary to support the organizational initiatives taken thus far and achieve the desired results. JCR-VIS will continue to monitor the company’s performance for improvement in portfolio quality and completion of the restructuring process, particularly in relation to meeting MCR, and ratings may be reviewed accordingly.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 501) or Ms. Sabeen Saleem (Ext: 510) at 35311861-70 or fax to 35311872-3.


Safdar Kazi
Director

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