Press Release

Ratings of Habib Bank Limited

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Karachi, June 30, 2015: 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). JCR-VIS has also assigned preliminary rating of ‘AAA’ (Triple A) to the proposed TFC issue of Rs. 20b. Outlook on the assigned ratings is ‘Stable’. Previous entity rating action was announced on June 30, 2014.

The assigned ratings reflect systemic importance of HBL in the domestic financial sector as the largest commercial bank in the country. The bank’s extensive outreach and continued focus on growth allowed it to capture sizable new bank accounts in 2014. Moreover, deposit mix has showcased notable improvement with sizeable growth in the proportion of non-remunerative deposits and further reduction in deposit concentration and cost. Besides a granular deposit mix, liquidity profile is also supported by sizeable liquid assets carried on the balance sheet. Ratings also incorporate HBL’s healthy capitalization levels, robust profitability & asset quality indicators and a sound governance infrastructure. The senior management team has largely depicted stability which bodes well for continuity in implementation of the business strategy laid down for the bank.

While entailing additional challenges from a risk management perspective, the overseas operations have allowed the bank to diversify country specific risks to an extent, with almost 16% of the resource base deployed overseas and contributing 10% to pre-tax profits. Corporate lending represents the major portion of HBL’s financing portfolio; the bank is cautiously expanding its presence in other market segments, including commercial, agriculture, SME and consumer. Moreover, Islamic banking operations have also gained traction in the out-going year, which is a rapidly growing market segment in the banking sector.

The banking sector has posted strong growth in profitability in 2014. With an increase in PIB holdings and linking of deposit rate on saving products to repo rate, the banking sector may be able to sustain the impact of declining interest rates over the near to medium term. However, if the low interest rate environment persists over the long term, spreads may come under pressure with maturity of PIBs. With sizeable holding of T-bills, HBL’s spreads may witness some pressure in the on-going year; however, management expects improving deposit mix and growth in earning assets to mitigate the impact of falling interest rates on the bank’s profitability. Non-markup income has also increased at a steady pace over the years, with various initiatives in this area likely to enable the bank to maintain the momentum; this includes synergies with other group entities whereby HBL’s large scale network is being used to market bancassurance products and a recently undertaken agreement to distribute mutual fund units.

HBL is in the process of issuing unsecured, subordinated TFCs amounting to Rs. 20b (inclusive of a Green Shoe option of Rs. 5b). The TFCs will have a tenor of 10 years. The bank’s robust capitalization reassures the protection available to depositors.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 501) or Ms. Sobia Maqbool, CFA (Ext: 604) at 35311861-70 (10 lines) or fax to 35311873.

Javed Callea
Applicable Rating Criteria: PRIMER - Commercial Banks (December 2001)
Rating the Issue (September 2014)

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 not an NRSRO and its credit ratings are not NRSRO credit ratings.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