Press Release

JCR-VIS reaffirms Entity Ratings of Khushhali Bank Limited

Karachi, April 25, 2012: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the medium to long term entity rating of Khushhali Bank Limited (KBL) at ‘A’ (Single A) and short term rating at ‘A-1’ (A-One). Ratings remain under ‘Rating Watch-Developing’ status on account of pending legal formalities regarding completion of acquisition by the UBL (United Bank Limited) led consortium. Upon conclusion of the acquisition process and subsequent reconstitution of the new board, ratings will be revisited.

Post acquisition, the consortium will own 79.2% of KBL’s shares; UBL’s shareholding will enhance to 29.7%. Other parties in the consortium include ASN-NOVIB Microkredietfonds (Triple Jump B.V), Credit Suisse Microfinance Fund Management Company (ResponsAbility Global Microfinance Fund), Rural Impulse Fund II S.A. SICAV-FIS (Incofin Investment Management Comm.VA) and ShoreCap II Limited (Equator Capital Partners LLC). With this acquisition, UBL plans to exploit the synergies between its existing Omni platform and the micro-finance activities undertaken by the bank. Apart from having the largest client base, KBL also has the largest branch network across Pakistan amongst microfinance banks.

Over the last two years, the quality of bank’s loan portfolio was affected by natural calamities; first floods in 2010 and later heavy rains in 2011 in Sindh; effected portfolio was fully provided by 1Q12. Despite the incremental provisioning charge in these periods, the bank has remained profitable on the back of grant income although operational self-sufficiency has weakened as compared to preceding year. In order to minimize losses emanating from adverse macro-economic conditions and natural catastrophes, KBL plans to pursue growth mainly in secured lending and, therefore, has recently introduced collateralized loan product.

Liquid assets in relation to deposits & borrowings are considered adequate. Given the bank’s growth plans and gradual retirement of long term loan, developing sustainable sources of funding is considered important to meet the bank’s liquidity requirements. In this respect, the successful deployment of core banking solution in 94 branches (out of 109 branch network) has facilitated mobilization of deposits. However; given the nascent stage; the current deposit base features volatility. The quality of deposits and cost of funds will be tracked by JCR-VIS for impact on financial risk profile of the bank.

For further information on this rating announcement, please contact Mr. Rashid Zahir at or Mr. Maimoon Rasheed at 042-36610681-84.

Jamal Abbas Zaidi
Deputy CEO

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 2012 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