Press Release

JCR-VIS Reaffirms the Entity Ratings of Arif Habib Bank Limited at ‘A/A-2’ (Single A / A-Two)
 

Karachi, June 29, 2010: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Arif Habib Bank Limited (AHBL) at ‘A/A-2’ (Single A / A-Two). Ratings remain under ‘Rating Watch-Developing Status’ on account of ongoing merger of Atlas Bank Limited (ABK) and My Bank Limited (MYB) into AHBL.

Given the acquisition of 59.4% stake in AHBL by Suroor Investments Limited (SIL) in 2009, Board and management of AHBL has witnessed changes in the past one and a half years. The bank’s capital has fallen below SBP’s Minimum Capital Requirement (MCR) for banks for end-December 2009 on account of compounding losses primarily attributable to incremental provisioning against NPLs. In view of the ongoing merger process, AHBL has applied for an extension in meeting MCR beyond the June 2010 extended deadline. SIL has signed share purchase agreements with majority shareholders of ABK and MYB; as and when payment is made to these institutions, the same will be merged into AHBL subsequent to which further capital may be injected into the merged entity by the sponsors. On the conclusion of merger, ratings of the merged entity will be revisited.

In 2009, lending portfolio of AHBL has experienced growth relative to 2008. Exposure to capital market participants was contained, while exposure was considerably increased in the power sector. Non-performing loans surged during 2009 largely on account of high delinquency rate experienced on loans extended to capital market participants.

In view of high concentration in the deposit mix, liquidity profile of the bank may come under stress if attrition is witnessed in a number of larger deposits; though level of liquid reserves provides some cushion to the bank.

Loss reported by the bank for 2009 was higher than projected by the bank. Cost of funding was on the higher side during 2009; though there has been some improvement in the on-going year on account of management’s efforts to shed high-cost deposits. In 2009, overheads have witnessed an increase relative to 2008 though remained on the lower side in relation to peers. AHBL is not likely to post profits in the on-going year.

For further information on this rating announcement, please contact the undersigned (Ext: 604) or Ms. Sobia Maqbool (Ext: 506) at (+92-21) 35311861-70 or fax to (+92-21) 35311872-3.


Safdar Kazi
Director

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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 2010 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