Press Release

JCR-VIS Reaffirms AAA ratings of Habib Bank Limited

Karachi, June 29 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). JCR-VIS has also reaffirmed the Basel 3 compliant Tier 2 TFC rating of HBL at ‘AA+’ (Double A Plus). Outlook on the assigned ratings remains unchanged at ‘Negative’. The previous rating action was announced on September 22, 2017.

The assigned ratings incorporate HBL’s position as the largest commercial bank in the country with systemic importance and diversified operations. The ratings also reflect strong momentum in domestic operations as evident from healthy increase in average current account deposits, broad based growth in financing portfolio with improving asset quality indicators, and strong liquidity & capitalization indicators. While overall earnings have been impacted post the settlement payment with respect to New York operations, profitability from domestic operations remains strong. Innovation, financial inclusion and compliance continue to be important pillars in the Bank’s overall strategy.

The liquidity profile of the Bank is healthy as evident from a sizeable & growing customer base and cost effective domestic deposit mix. HBL continues to dominate in terms of new to bank relationships with 1.3m new deposit customers added in 2017 taking the total customer base to over 11m worldwide. The Bank’s sizeable customer base is a significant strategic advantage. However, depositor concentration levels have increased on a timeline basis and there is room for improvement.

Despite a drop in equity base, capital indicators have showed significant improvement due to focused management of Risk Weighted Assets (RWAs) and are currently above JCR-VIS’s benchmark for the assigned ratings. Increasing regulatory capital requirements as part of Basel 3 and D-SIB framework implementation will result in a need to further enhance capital buffers over the next 18 months. Focus on management of RWAs along with higher internal capital generation vis-à-vis 2017, is expected to result in capital buffers to continue be above with the benchmark for the assigned ratings.

Contribution of overseas assets in the Bank’s total asset base declined to 8.5% at end-2017 due to the higher growth in domestic assets and consolidation in the international business, which remains a key focus area. Growth in portfolio is anticipated primarily from Middle East, while China operations are expected to receive a boost as RMB clearing license has now been issued.

Ratings continue to be placed on negative outlook as JCR-VIS would track impact of macroeconomic developments on profitability (quantum of exchange losses), increasing regulatory capital requirements and development of look back by New York regulator; JCR-VIS understands that there is no update since the disclosure in the Bank’s 2017 financial statements. The rating outlook would be reviewed, if needed, with the unfolding of events in these matters.
For further information on this rating announcement, please contact the undersigned at (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.

Javed Callea

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