Press Release

VIS Maintains Entity Ratings of House Building Finance Company Limited

Karachi, June 12, 2020: VIS Credit Rating Company Limited has maintained the entity ratings of House Building Finance Company Limited (HBFCL) at ‘A/A-1’ (Single A/A-One). Outlook on the assigned ratings has been revised from ‘Positive’ to ‘Stable’. The long-term rating of ‘A’ signifies good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-1’ indicates high certainty of timely payment; Liquidity factors are excellent and supported by good fundamental protection factors. Previous rating action was announced on May 13, 2019.

Rating incorporates the implicit sovereign support from Government of Pakistan, holding entire stake in the company directly and indirectly through State Bank of Pakistan. Ratings also reflect strong capitalization and healthy liquidity profile of HBFCL. The revision in rating outlook reflects lower operating efficiency, challenging environment for recoveries and anticipated weakening in financial profile.

Growth in advances portfolio was achieved on the back of higher disbursements in its new products, during 2019. The company had launched two new construction related products by the name of Ghar Pakistan Scheme and Ghar Pakistan Scheme Plus. While the company had made sizeable disbursements, it also received recoveries and taken fresh provisioning from its non-performing portfolio translating into a stagnant net portfolio of Rs. 11.7b as of December 31, 2019. With a largely stable financing portfolio, improvement in infection levels of the company attributed to lower quantum of non-performing loans (NPLs). Management expects new product launches and recent organizational restructuring to aid achieving business growth targets. Nonetheless, achievement of disbursement targets for 2020 remains challenging given the recent economic slowdown.

Given the current ongoing uncertain Coronavirus pandemic scenario and accompanying impact of lockdown, management anticipates recoveries to be a challenge in the ongoing year. In order to mitigate this risk, HBFCL plans to involve the related institutions for easy recovery from employees. Developments in this regard will be tested over time. Moreover, reduction in property prices and halted lending activities are expected to adversely impact HBFCL’s loan portfolio, during the ongoing year.

Profitability of the bank was impacted by increase in provisions against non-performing loans and expenses incurred for staffing. Top line of the company remained a function of higher benchmark rates. With lower anticipated disbursements and trend in benchmark rates, profitability levels of the company are expected to remain under pressure. Efficiency ratio of HBFCL also weakened on account of higher growth in expenses to 54.2% (2018: 45.9%) in 2019. Future direction of earnings will be a function of quantum of disbursements and credit quality of the same, recovery from non-performing portfolio and level of administrative expenses.

For further information on this rating announcement, please contact Mr. Jamal Abbas Zaidi (Ext: 207) or Ms. Muniba Abdullah, CFA (Ext: 215) at 021-35311861-71 or email at info@vis.com.pk .

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Government Supported Entities (June 2016)
http://www.vis.com.pk/kc-meth.aspx

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