Press Release

JCR-VIS reaffirms credit ratings of Khushhali Bank Limited

Karachi, May 3, 2007: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the credit ratings of Khushhali Bank (KB) at A- /A-1 (Single A Minus / A-one).

KB is the first micro-finance institution established in the formal sector. Its shareholders include the largest commercial banks of the country. With a capital base of Rs. 1.7b, the bank has the mandate to undertake nation-wide operations. In addition to being a provider of micro-finance loans, KB also acts as the government’s arm in executing social projects in its areas of operation.

KB has developed a sizeable loan book and with an expanding branch network, geographical diversity in the portfolio has also been increased. Portfolio quality indicators have improved at year-end 2006 and reduction in the rate of incremental infection has also been a positive development. Operational readjustments in some areas can improve the control environment and help improve portfolio quality indicators further.

The main source of funding has so far been the loan from Asian Development Bank. This credit line has been completely drawn down and repayment will commence from 2009. While presently the bank has significant liquid reserves on its books, developing access to alternative funding sources will become increasingly important over the long run. As KB increases its reliance on commercial borrowings, cost of funds will change considerably. Operating in the MF sector also requires higher client servicing costs and loan pricing may need to be re-visited upward to improve profitability.

The ‘Positive’ outlook on ratings is being maintained in view of the growth potential perceived for the coming years. The bank has migrated to a new software developed by the in-house IT team while acquisition of a core banking application is also expected to be expedited in view of the release of funds to be utilized for this purpose. This would also enable the bank to initiate deposit mobilization.

For further information on this rating announcement, please contact Mr. Safdar Kazi (Ext: 605) or Ms. Sabeen Saleem at (Ext: 608) 5311861-72 or fax to 5311873.

Faheem Ahmad
President & CEO

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 2007 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