Press Release

JCR-VIS Upgrades Entity Ratings of Khushhali Bank Limited

Karachi, April 30, 2015: JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded the entity ratings of Khushhali Bank Limited (KBL) from ‘A/A-1’ (Single A/A-One) to ‘A+/A-1’ (Single A Plus/A-One). Outlook on the rating has been revised from ‘Positive to ‘Stable’. The previous rating action was announced on April 23, 2014.

The assigned ratings take into account presence of reputable international investors along with one of Pakistan’s largest banks as major sponsors of KBL. Following the change in ownership structure in 2012, there has been a marked improvement in governance infrastructure and strategy formulation as reflected in the growth achieved by the bank in recent years, while investment on the IT side has also been made.

KBL has the largest branch network spread across all provinces of the country. Market share of the bank has increased in recent years owing to an aggressive lending stance. Agriculture and livestock lending remains the forte of the bank while the management aims to diversify product mix from rural to urban markets with penetration planned in the Micro, Small & Medium Enterprise (MSME) sector; successful execution would require continued investment in human capital and back-end support and control infrastructure. As a result of change in product structure, proportion of Equal Monthly Installment (EMI) based loans is projected to grow.

While deposit base has also grown, the deposit profile continues to feature concentration. In this backdrop, current level of liquidity carried on the balance sheet may need to be enhanced till such time deposit profile achieves maturity. Expanding geographical presence along with branch renovation plans is projected to support the bank’s deposit mobilization activities. Impact of the same will be tracked over time, with deposit mobilization considered an important area, given the bank’s growth plans. The bank has also developed access to commercial sources of funding in addition to the Asian Development Loan, which is now gradually being retired following an 8 years grace period.

Improvement in bank’s profitability in 2014 was a function of growth in core operations. Markup-spreads may benefit further from the decline in market benchmark rates, to which funding cost is generally tied with, while return on advances may improve with increasing share of EMI based loans. Additionally, the institution plans to utilize the information technology platform to improve operational efficiency. Retention of profits has resulted in a growing equity base, though Capital Adequacy Ratio has come down over time in view of the aggressive growth in lending operations.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA (Ext: 604) at 021-35311861-70 (10 lines) or Mr. Maimoon Rasheed at 042-35743411-13.

Javed Callea

Applicable Rating Criteria:
Microfinance Institutions (October 2003)

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 2015 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