Karachi, June 19, 2015: JCR-VIS Credit Rating Company Limited (JCR-VIS) has maintained the entity ratings of NBP Leasing Limited (NBPL) at ‘A+/A-1’ (Single A Plus/A-One). The previous rating action was announced on June 24, 2014.
NBPL is a wholly owned subsidiary of National Bank of Pakistan (NBP). The ratings of NBPL derive strength from its association with NBP, which is one of the largest commercial banks operating in the country.
Access to capital in the leasing sector has generally remained limited in recent times; this has affected the growth of the industry. NBPL, while having support from its parent, has been able to modestly increase its portfolio in the outgoing year. The lease portfolio features both sectoral and client-wise concentration; exposure against top ten clients represented around half of the portfolio at end-FY14. Quality of portfolio has depicted some improvement on account of recoveries, in addition to some growth in lease portfolio. The non-performing leases currently carried on books primarily pertain to legacy portfolio and fresh accretion of NPLs in recent years has remained limited.
The company has maintained sound capitalization indicators, with equity growing over time on the back of internal capital generation. Debt leverage is projected to increase slightly though remaining at manageable level. Assets and liabilities are well matched; moreover, collection performance against lease bills remains satisfactory, generating a steady stream of cash flows from existing assets.
Despite higher pre-tax profits, post tax earnings in FY14 almost remained at preceding year’s level mainly on account of incidence of deferred tax liability. The change in tax regime in terms of introduction of Alternate Corporate Tax (ACT) applied on accounting income and decision of the Federal Government, in the country’s Budget for FY14-15, to halve the rate of Initial Depreciation Allowance from 50% to 25% for some assets, as prescribed by the Income Tax Ordinance, may increase tax burden on the leasing industry, going forward. Given that leverage is low, impact of decline in interest rates on the company’s earnings will remain muted; moreover, pricing of both assets and liabilities of NBPL is benchmarked with market rates.
Outlook on the rating has been revised from ‘Positive’ to ‘Stable’ on account of limited access to capital and change in tax regime applicable to the leasing sector, which are likely to impact growth prospects.
For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA or Mr. Maimoon Rasheed at 021-35311861-70 and 042-35723411-13, respectively, or fax to 021-35311873.
Mohammed Khalid Ali
Applicable Rating Criteria: Non-Bank Financial Companies
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