Karachi, June 28, 2016: JCR-VIS Credit Rating Company Limited has revised the entity ratings of House Building Finance Company Limited (HBFCL) from ‘A/A-2’ (Single A/A-Two) to ‘A-/A-2’ (Single A minus/A-Two). Outlook on the assigned ratings is ‘Negative’. The previous rating action was announced on June 30, 2015.
While ratings incorporate the sovereign ownership strength of the company, they stand constrained by the overall capitalization of the organization. According to the new debt to equity swap plan which is significantly adverse than that previously envisioned by retaining debt on books as preference shares which would require considerable annual servicing cost. Though the swap plan entails an equity boost of Rs 4.1b, through the conversion of accrued mark-up into common equity, the company would continue to fall short of statutory MCR of Rs. 6b. The risk absorption capacity and operational efficiency of the company is thus compromised and expected to remain as such given no capital injection is forthcoming.
Although net advances portfolio depicted growth, its effect on net mark-up income was mitigated largely due to lower repo earnings. While advances remain concentrated in Ghar Asan Flexi Scheme (GAF), the only active scheme, management is accredited for record disbursements, cash recoveries and reduction in number of non-performing loans (without offering any incentives to borrowers) during 2015. The effectiveness of same would be tested over time.
For 2015, the company posted a total comprehensive loss amounting to Rs. 1,248.0m (2014: profit Rs. 281.4m) attributable largely to a nearly fifty percent increase in salaries related cost and mounting charge for defined benefit plan. The institution needs to adopt a HR policy to attract competitive staff on a long term basis. The volumetric growth of the company to achieve operational sustainability would also be dependent on sound risk management policies, updated IT infrastructure and an adequate capital structure, going forward.
For further information on this rating announcement, please contact the undersigned (Ext: 508) or Mr. Javed Callea (Ext: 501) at 35311861-70 or fax to 35311872-3.
Mohammed Khalid Ali
Applicable Rating Criteria:
Government Supported Entities (July 2002)
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