Press Release

VIS reaffirms HBL’s ‘AAA’ entity ratings and rating of ADT-1 instrument is reaffirmed at ‘AA+’

Karachi, June 30, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Habib Bank Limited (HBL) at ‘AAA/A-1+’ (Triple A/A-One Plus). Rating of HBL’s Basel III compliant additional Tier-1 (ADT-1) TFC (issued in September 2019) has also been reaffirmed at AA+ (Double A Plus). Outlook on all the assigned ratings is ‘Stable’. Previous rating action was announced on June 30, 2020.

The assigned ratings incorporate HBL’s position as the largest commercial bank in the country (asset base greater than Rs. 3tr) with systemic importance (Domestic Systemically Important Bank), strong domestic franchise and diversified operations. The ongoing Covid-19 pandemic has accelerated the pace of digital transformation. HBL’s strategy over the last few years of enhancing its digital footprint and focusing on digital customer acquisition will continue to be a source of competitive advantage for the Bank.

Ratings also reflect strong financial profile as evident from robust liquidity, sound capitalization and asset quality indicators despite subdued macroeconomic environment in the outgoing year due to COVID-19. Pace of credit growth slowed in 2020 but has remained slightly ahead of industry growth. Asset quality indicators of the bank remain sound with additional provisioning coverage amidst an uncertain economic environment. Credit and market risk emanating from the investment portfolio is considered manageable given the sizeable exposure in GoP instruments. Despite higher provisioning charges in the outgoing year, and a steep decline in benchmark rates, profitability indicators of the Bank improved significantly on the back of higher spreads on account of immediate repricing of liabilities vis-a vis assets and sizeable capital gains on federal government securities. Moreover, since the costs related to New York and the Business Transformation Program have subsided, cost-income ratio of the bank improved to 59% (2019: 72%) during 2020. Going forward, the projected increase in the advances portfolio is expected to yield higher profits to the Bank. Moreover, normalization of expenses particularly with regards to international operations is expected to facilitate growth in profitability during 2021. Profitability indicators are expected to align with rating benchmarks over the rating horizon.

Ratings also take into account HBL’s robust liquidity profile as evident from sizeable customer base, cost-effective deposit mix and strong liquidity buffer in terms of liquid assets to deposits and borrowings. While deposit concentration levels continue to increase on a timeline basis based on year-end deposits, deposit concentration level based on average deposit balances have remained within manageable levels. Overall capitalization indicators are sound with HBL’s strong focus on maintaining and enhancing capital buffers as reflected by a conservative dividend payout policy, issuance of Additional Tier-1 capital (issued in 2019) and efforts to optimize risk weighted assets growth being a key rating driver. Given SBP’s relaxation in Capital Conservation Buffer (CCB) requirement by 100bps, additional Tier II capital became eligible consequently strengthening total CAR of the Bank. HBL’s Tier-1 and Total CAR (unconsolidated basis) have improved on a timeline basis since 2017 and were reported at 15.2% (2020: 14.8%; 2019: 13.7%) and 19.7% (2020: 19.2%, 2019: 17.1%) at end-Mar’21, respectively. Tier-1 and Total CAR of the bank stand well above regulatory requirements.

Overseas assets represent around one-tenth of total assets. On international front, HBL remained focused on consolidation and de-risking along with strengthening governance and infrastructure through right sizing, developing client relationships, and enhancing network connectivity and technology capability. Pursuant to the same, HBL exited its business in Hong Kong. Going forward, China will be the key focus. HBL is one of only 3 banks across South Asia and MENA to offer end-to-end RMB intermediation. This capability, along with commencement of the Beijing branch operations is expected to strengthen relationships with Chinese clients, providing a competitive edge to the Bank versus regional and Pakistani Banks. Following the successful implementation of its China coverage model in the UAE, the Bank has extended this model to Bangladesh and Sri Lanka. Focus on improving compliance systems, processes, governance and staffing has continued during the review period. The strengthening of compliance framework is targeted to be an ongoing activity.

Ratings remain dependent on maintaining asset quality indicators, strengthening capital buffers and improving earnings profile in line with rating benchmarks.

For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext. 201) at 021-35311861-70 or email at

Javed Callea

Applicable rating criterion: Commercial Banks Methodology -June 2020

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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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