Press Release

JCR-VIS Upgrades Entity Ratings of Samba Bank Limited

Karachi, June 30, 2015: JCR-VIS Credit Rating Company Ltd has upgraded the entity ratings of Samba Bank Limited (SBL) from ‘AA-/A-1’ (Double A Minus/A-One) to ‘AA/A-1’ (Double A/A-One). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on June 24, 2014.

The ratings of SBL are driven by the strong profile of its sponsor, the Samba Financial Group (SFG). SFG is a prominent banking group in Saudi Arabia and rated among the Top 50 safest banks worldwide by Global Finance. Given the resources available with SFG, with an asset base exceeding USD 58b and more than USD 10b of equity, and the size of SBL in context of the same, ability to provide support is considered strong. SFG has demonstrated its commitment towards SBL by way of timely injection of capital; SFG holds 84.5% of the bank’s shares.

Ratings also reflect SBL’s improved risk profile on a standalone basis as underpinned by strong capitalization, liquidity and asset quality indicators. Management has developed a long term business plan which envisages stringent liquidity and capitalization buffers. The bank has ample room to grow its risk weighted assets; capital buffer is projected to remain strong with CAR projected to remain over 19.5% over the next 5 years.

The bank’s current market share in terms of deposits is very limited at under 0.4%. The bank is working on a growth oriented strategy; branch network, which is currently the smallest in the banking sector, is proposed to be enhanced to 100 over the next 5 years to support the bank’s growth targets. With significant deployment in GoP securities and equity in relation to total assets of almost 22.0%, the bank currently has a relatively liquid balance sheet mix. This mitigates the risks associated with asset/liability mis-match and high deposit concentration levels.

Given a well-articulated policy framework for undertaking financing and investment exposures, credit risk on the bank’s books remains within manageable limits with exposure primarily against blue-chip corporates. The loan portfolio has been diversified with several new parties added to the corporate book; launch of commercial banking operations is also on the anvil. To accommodate the expansion plan, significant investment in IT infrastructure is projected in future including the implementation of a new core banking system in FY16.

Core earnings improved in 2014 on the back of growth in loan book, while the bank has also locked in high rates on long term PIBs. This is likely to enable the bank to weather the impact of decline in interest rates in the near to medium term. Once the existing PIB holdings begin to mature, the bank could be faced with pressure on spreads if the declining interest rate environment persists, unless any meaningful reduction in cost of deposits is achieved. The management has also undertaken cost rationalization measures to improve operating efficiency, though it remains weaker than benchmark stipulated for assigned rating as also the 66% median for banks rated in the AA category. Fee based income is currently limited and the bank is working on this area. Return on equity was reported at 2% for 2014 vis-à-vis 18% median for banks rated in the AA category.

For further information on this rating announcement, please contact the undersigned (Ext: 501) or Ms. Sobia Maqbool, CFA (Ext: 604) at 35311861-70 or fax to 35311873.

Javed Callea

Applicable Rating Criteria:
PRIMER - Commercial Banks (December 2001) -

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.

JCR-VIS Credit Rating Company Limited