Press Release

JCR-VIS Assigns Positive Outlook to Entity Ratings of Al Baraka Bank (Pakistan) Limited

Karachi, June 29, 2015: JCR-VIS Credit Rating Company Limited has maintained the entity ratings of Al Baraka Bank (Pakistan) Limited (ABPL) at ‘A/A-1’ (Single A/A-One). The previous rating action was announced on June 30, 2014.

Owned in majority by Al Baraka Islamic Bank B.S.C. Bahrain, a member of Al-Baraka Banking Group (ABG), ABPL benefits from the group’s multi-jurisdictional presence and strong franchise. The group is regarded as being amongst the pioneers in Islamic finance. Dagong Global Credit Rating Company Limited (Dagong) and Islamic International Rating Agency (IIRA) have jointly assessed the international scale credit ratings of ABG at ‘BBB+/A3’ (Triple B Plus/A-Three). In addition, IIRA has assessed ABG’s national scale ratings at ‘A+(bh)/A2(bh)’ (Single A Plus/A-Two).

On-going sponsor commitment is evident by the USD 19.5m sub-ordinated foreign currency loan made available by Al Baraka Islamic Bank B.S.C. Bahrain, to be counted towards the bank’s minimum capital requirement (MCR), as per the arrangement approved by the State Bank of Pakistan (SBP). The sponsor’s loan would be converted into equity if MCR compliance is not achieved by December 31, 2016.

Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’ as JCR-VIS expects continued momentum in the recovery of financial indicators of the bank to translate into improved positioning of ABPL vis-à-vis peer banks, going forward. The bank’s overall exposure to credit risk has declined over time as manifested in improved asset quality indicators and a slight reduction in portfolio concentration on a time-line basis. Incidence of non-performance in financings undertaken in recent years has been minimal. Liquidity profile of the bank remains adequate in view of the quantum of liquid assets carried on balance sheet in relation to deposits and borrowings. However, there remains significant room for improving the deposit mix; management is making concerted efforts in this regard.

Profitability pressures are likely to shape the bank’s business strategy on a continuing basis. Interest rates in Pakistan have touched record low levels. For Islamic banks, where most assets are re-priceable, barring the Bai Muajjal transactions with SBP introduced lately, the pressure on spreads is likely to be greater. In order to address these challenges, ABPL has been aggressively working to contain its cost of deposits in addition to which growth in high margin segments is being pursued to enhance return on assets.

For further information on this rating announcement, please contact Mr. Muhammad Khalid Ali (Ext: 508) or Ms. Sobia Maqbool, CFA (Ext: 604) at 92-21-35311861 or fax to 92-21-35311873.

Javed Callea

Applicable Rating Criteria: PRIMER - Commercial Banks (December 2001)

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 2015 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