Press Release

Entity Ratings of Sindh Bank Limited

Karachi, June 30, 2020: VIS Credit Rating Company Ltd. (VIS) has reaffirmed the entity ratings of Sindh Bank Limited (SNDB) at ‘A+/A-1’ (Single A Plus/A-One). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 28, 2019.

The assigned ratings incorporate SNDB being a wholly owned subsidiary of Government of Sindh (GoS). Explicit support of the Bank’s sponsor is a key rating consideration. Ratings incorporate sizeable capital injection to the tune of Rs. 11.7billion in 2019 which has allowed the Bank to achieve compliance with Capital Adequacy Ratio requirement. Moreover, an additional Rs. 3billion is expected to be added to Tier-1 capital post-merger with Sindh Leasing which has been approved by the cabinet on 25th June 2020. Strong sponsor support is also evident from sizeable deposits by GoS and related entities. VIS expects strong support to continue in future in order to ensure compliance with regulatory requirements whenever the need arises. In line with its methodology, VIS uses a bottom-up approach for rating entities owned and having explicit support of sub-sovereigns where standalone ratings can be notched up to 3-4 notches which has been factored into the rating to incorporate for strong sponsor support.

On a standalone basis, liquidity and capitalization indicators have witnessed improvement on a timeline basis. Nevertheless, asset quality and profitability profile remain weak. Liquidity buffers are adequate as evident from sizeable liquid assets in relation to deposits and borrowings and significant cushion in terms of LCR and NSFR. However, given the sizeable deposit concentration liquidity buffers remain exposed to external shocks as had been witnessed in 2019. Deposit base after recovering in the last quarter of 2019 has continued growth momentum in the ongoing year. Nevertheless, reducing depositor concentration levels and improving deposit mix is considered important. During the outgoing year, senior management team has been strengthened with the appointment of a new CEO. Moreover, fresh inductions have been undertaken at the position of Head of Risk, Corporate & SME credits, Operations and Compliance. Ratings incorporate efforts to strengthen governance and risk management framework which is considered important from a ratings perspective.

Gross financing portfolio depicted a slight decline in the outgoing year. Overall client and sectoral concentration in financing portfolio remains on the higher side signifying sizeable exposure to credit risk. Going forward, management plans to cautiously grow in the consumer and SME segment while quality of underwriting will be crucial as credit risk is higher in these segments. Restriction on corporate lending remains in place and whenever lifted, will augment the Bank’s business plan. Net infection is considerably on the higher side vis-à-vis rating benchmark while provisioning coverage is low due to sizeable FSV benefit realized by the Bank. Regulatory relief measures undertaken by SBP to promote financial stability, ensure continued credit supply to the economy and maintain confidence in the banking system have been received positively and are expected to delay the impact of prevailing headwinds on portfolio asset quality indicators. However, exposure of banking sector to credit risk is elevated due to significant impact of Covid-19 on already weak macroeconomic indicators. Our credit impairment expectations are conservative, albeit there is a probability of deviation from expectations; downside risk is elevated, amidst an uncertain economic environment.

Investments represented the largest component of SNDB’s balance sheet at around 41% of the asset base. Credit risk emanating from investment portfolio is considered limited as ~92% of investments are deployed in GoP securities. Sharp decline in interest rates has resulted in revaluation surplus on PIB portfolio from a significant deficit position. Given the current low level of spreads due to non-performing exposures, SNDB incurred sizeable operating loss in 2019 while higher provisioning charges resulted in SNDB incurring a significant loss. Although quantum of operating losses is expected to decline, VIS expects trend in operating losses to persist in 2020. VIS will continue to closely monitor the bank’s performance metrics where compliance with communicated rating benchmarks for asset quality (net infection), capitalization (net-NPLs to Tier-1 equity), profitability (cost to income ratio) and liquidity (deposit concentration) benchmarks while continued sponsor support would remain crtical. Any material deterioration in asset quality or continuity of losses will result in weakening in capital buffers and may need to be incorporated in the assigned ratings.

For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext. 306) at 021-35311861-70 or email at

Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Commercial Banks Methodology –March 2018

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 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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