Press Release

JCR-VIS revises outlook on HBL’s AAA rating to ‘Stable’ from ‘Negative’

Karachi, December 31, 2018: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Habib Bank Limited (HBL) at ‘AAA/A-1+’ (Triple A/A-One Plus). In line with JCR-VIS’s standard notching criteria, rating of Basel 3 compliant Tier 2 TFC rating of HBL has been upgraded to ‘AAA’ from AA+ (Double A Plus). Outlook on all the assigned ratings has been revised to ‘Stable’ from ‘Negative’. The previous rating action was announced on June 29, 2018. The assigned long term ‘AAA’ rating indicates the highest credit quality; the risk factors are negligible, being only slightly more than the risk-free Government of Pakistan’s debt. Short-term rating of ‘A-1+’ indicate highest certainty of timely payment; Short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding.

The reaffirmation of the ratings and the change in outlook to stable is driven by JCR-VIS's assessment of improved financial performance metrics in terms of capitalization and asset quality indicators while robust liquidity profile has largely been maintained. Moreover, improvements being undertaken on the corporate governance framework in general and compliance front in particular have been noted positively. Revision in outlook reflects JCR-VIS’s expectation that the bank would be able to sustain higher capital buffers as it continues to focus on capital management and improve earnings profile over the rating horizon. The assigned ratings also incorporate HBL’s position as the largest commercial bank in the country with systemic importance, strong franchise and diversified operations.

Despite a sizeable settlement payment with respect to New York operations and significant growth in advances portfolio, capitalization indicators have improved vis-à-vis 2016 due to conservative dividend payout and focused management of Risk Weighted Assets. Issuance of planned additional Tier-1 instrument will further strengthen capitalization indicators. Robust liquidity profile is evident from a sizeable & growing customer base, largest in the banking sector, and cost effective domestic deposit mix. Significant liquid assets carried on the balance sheet also support assessment of liquidity profile of the Bank. Moreover, asset quality indicators have continued to improve with gross infection at end-Sep’2018 being the lowest over the last five years.

Profitability indicators have depicted weakening due to international operations and sizeable non-recurring items (remediation & pension cost, exchange losses on foreign currency borrowing and consultancy & legal expenses). Ratings incorporate JCR-VIS’s expectation that profitability indicators will gradually improve in 2019 on the back of balance sheet growth & spread improvement (full impact expected from 3QCY19) and significant reduction in non-recurring expenses. From 2020 onwards, JCR-VIS expects profitability indicators to revert to normalized levels and become compliant with JCR-VIS’s profitability benchmark for the assigned ratings.

For further information on this rating announcement, please contact the undersigned (Ext: 207) at 021-35311861-70 or fax to 021-35311872-3.

Jamal Abbas Zaidi

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