Press Release

JCR-VIS Maintains Entity Ratings of Silk Bank Limited

Karachi, June 29, 2018: JCR-VIS Credit Rating Company Limited has maintained the entity ratings of Silk Bank Limited (Silk) at ‘A-/A-2’ (Single A Minus/A-Two). The previous rating action was announced on June 30, 2017.

The assigned ratings reflect enhanced earning profile supported by increase in high yielding consumer portfolio, reduction in deposit cost, and higher capital gain and rental income on Other Real Estate Owned (OREO). In absolute terms, profit before tax has witnessed sizeable growth over the last two years and was reported at Rs. 1.38b (2016: Rs. 1.28b; 2015: loss before tax of Rs. 1.84b) in 2017. Ratings also incorporate improving asset quality indicators given sizeable growth in advances with limited accretion of fresh Non-Performing Loans. The management has initiated a plan for optimization and reduction in risk weighted assets (RWAs) which is projected to result in buffer over regulatory liquidity & capitalization requirements. Given the aforementioned improvements and plans for adherence to liquidity and capitalization benchmarks, outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’.

Gross advances were higher by 30% to Rs. 90.1b (2016: Rs. 69.3b) at end-2017 while counterparty and group portfolio concentration has also increased. Select corporate clients from trading, sugar, leather and rice sectors may result in asset quality pressures while restructured clients may also require close monitoring. Consumer portfolio continued its growth momentum with double digit increase in portfolio across all products. Contribution to bank’s overall profitability of the consumer segment is sizeable with asset quality indictors continuing to be maintained at sound levels. Consumer and SME assets will be the key growth drivers in the financing portfolio in 2018 while consolidation is planned in the corporate portfolio.

Deposit base witnessed growth with sizeable increase in core deposits; as a result, CASA ratio improved while cost of deposits depicted decline. Going forward, depositor profile is planned to be enhanced with focus on core deposit growth, through enhancing new-to-bank customers, opening of banking booths and digital banking initiatives. Liquidity buffer carried on balance sheet remains on the lower side and the management has initiated a plan for reducing depositor concentration levels and increasing liquidity buffer.

While declining on a timeline basis, non-earning assets remain sizeable in relation to total assets and bank’s own equity. Capital Adequacy Ratio (CAR) of the bank was 11.04% as at March 31, 2018, against the minimum requirement of 11.275% on account of high capital consumption given the sizeable growth in advances portfolio. The bank has exemption from SBP, for meeting the Tier-1 and overall CAR requirements till June 30, 2018. Timely achievement of planned reduction in RWAs, disposals of non-banking assets, quantum of future profits and quality of exposures will be important determinants for achieving capitalization indicators in line with benchmarks for the assigned ratings.

For further information on this rating announcement, please contact the undersigned (Ext: 306) at (+92-21) 35311861-70 or fax to (+92-21) 35311872-3.

Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Commercial Banks Methodology - March 2018

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited JCR-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.JCR-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.JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.JCR-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 2018 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited