Press Release

JCR-VIS Reaffirms Entity Ratings of Khushhali Bank Limited

Karachi, April 29, 2016: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Khushhali Bank Limited (KBL) at ‘A+/A-1’ (Single A Plus/A-One). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on April 30, 2015.

The assigned ratings incorporate sound profile of its sponsors including reputable financial institutions along with presence of one of the largest commercial banks of Pakistan. Shareholding pattern of the bank witnessed changes with the exit of two domestic commercial banks. As a result, interest held by its existing consortium further increased.

With aggressive growth in loan book, the bank maintained its market share as a leading microfinance institution. Agricultural lending remains forte of the bank, while a modest portfolio in Micro, Small and Medium Enterprises (MSME) was developed as the bank strategically entered into the MSME space. In order to mitigate product concentration risk, management plans to launch house financing and Islamic microfinance products in the coming years.

Overall infection remained low, albeit infection indicators increased on a timeline basis. Quality of portfolio was mainly impacted as a result of declining crop prices under its value chain financing product; future lending in such a product would need to be more cautious. Higher infection was also triggered by change in agriculture lending product structure along with turnover at Loan Officers level. In view of these challenges, management has implemented structural changes at the branch level.

Deposit base of the bank also exhibited significant growth. The deposits are considered as a primary funding source and the cost of deposits also improved on a timeline basis. In view of the high concentration in deposit profile, liquid assets as a proportion of deposit and borrowings have been increased. Moreover, the bank has access to commercial funding sources by negotiating additional lines with banks which can be utilized to plug in any funding gap.

Growth in core earnings was primary driver of the bank’s profitability in 2015. Spreads depicted consistency during 2015; going forward, management anticipates spreads to further improve given increasing share of EMI based loans. In absolute terms, Capital Adequacy Ratio (CAR) depicts adequate room for growth in risk weighted assets; the bank, however, may need to control portfolio quality indicators given its aggressive growth stance.

For further information on this rating announcement, please contact the undersigned (Ext: 508) at 021-35311861-71 or Mr. Maimoon Rasheed at 042-35723411 or fax to 021-35311872-3.

Faheem Ahmad
President & CEO

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 2016 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