Press Release

JCR-VIS Reaffirms Entity Ratings of Al Baraka Bank (Pakistan) Limited at A/A-1

Karachi, June 30, 2014: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Al Baraka Bank (Pakistan) Limited (ABPL) at ‘A/A-1’ (Single A/A-One). Outlook on the assigned ratings is ‘Stable’.

Assigned ratings of ABPL derive strength from its association with the Al-Baraka Banking Group; a prominent Islamic Banking Group having diversified operations in 15 countries. During 2013, Al Baraka Islamic Bank B.S.C. (C), Bahrain, the major sponsor of ABPL, has made available Rs. 1.16b (USD 11m) in the form of subordinated loan, to be counted towards ABPL’s minimum capital requirement, which reflects positively on the sponsor’s commitment towards operations in Pakistan. This amount has been placed in a non-earning foreign currency deposit account with the State Bank of Pakistan (SBP). As per ABPL’s capitalization plan, an additional Rs. 1.65b of sub-ordinated debt is to be made available over the course of the next two years. In order to achieve compliance with CAR requirement of 16%, ABPL is in the process of issuing a Rs. 2.5b unsecured & sub-ordinated Sukuk.

Financing portfolio of ABPL has depicted healthy growth in 2013. Increase has been witnessed across corporate as well as the SME/Commercial segments. Fresh exposures in the corporate segment have been taken against established names. Overall portfolio now comprises a mix of top and mid-tier clients. As the universe of top-tier clients is increasingly becoming saturated, management has identified Commercial and SME sectors as future growth areas. This will allow ABPL to achieve greater breadth in lending operations while also mitigating the adverse impact of concentration in the portfolio. Sizeable recoveries against non-performing financing resulted in improvement in portfolio quality, though they still compare less favorably to peers. As per management, recoveries in the ongoing year are expected to further improve portfolio quality.

Profitability indicators have posted improvement in the ongoing year. This is attributable to higher net spreads in absolute terms and increase in fee based income while expense base has only witnessed a slight increase. Continuity of positive momentum in earnings will be tracked over time. Liquidity profile of ABPL is considered adequate in view of sizeable liquid assets in relation to deposits and borrowings.

ABPL opened 16 new branches in 2013. Branch expansion is planned to continue with branch network targeted to reach 235 branches by year-end 2018. This is likely to enable ABPL to achieve broad based growth in deposits. Overall sector dynamics remain positive with the Islamic Banking Industry (IBI) in Pakistan posting robust growth, with market share of over 10% at year-end 2013 in terms of deposits. The growth trajectory is likely to continue and bodes well for Islamic Financial Institutions.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 501) or Ms. Sobia Maqbool, CFA (Ext: 604) at 92-21-35311861 or fax to 92-21-35311873.

Abdur Rahim

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 2014 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