PACRA Maintains Rating of JS Bank – TFC Tier 1

Lahore, December 30, 2019 (PPI-OT): The ratings reflect relative position of JS Bank in the country’s competitive banking landscape. This stems from system share in deposit which largely remained the same and depleted advances. The bank’s funding base enhanced attributable to slight increase in deposit base, however borrowings from financial institutions decreased. The increased liquidity inched up to ~33.4% since Dec18 mainly due to less borrowings from financial institutions.

Hence, ADR significantly reduced to 74.3%. NPLs have emerged in the recent period, which is a concern. Going forward, higher provisioning expense may pose a challenge to profitability of the bank which is already diluted by currently high markup on deposits and mark to market losses, these are expected and diluted as reaching maturity.

The strategy of the bank is i) to foster penetration of existing network beyond 345 branches over the near-term; ii) consolidate advances book and replace it with liquid collateralized advances to maintain CAR, iii) build non-fund based income; and iv) hold strength in treasury operations. The challenge to profitability is dried return of capital gains. The bank expects the profits to be boosted from growing direct and ancillary business.

The bank is facing a challenge on its CAR; Total CAR stood at 12.1% (Tier-I at 9.5% as at Sep19). The management has represented that, with their concerted efforts, it would stand compliant as on end- Dec2019. This along with other performance indicator would be reviewed upon finalization of the annual financial statement for 2019.

Ratings are dependent on JS Bank’s ability to sustain its profitability to support internal generation of capital. Meanwhile, upholding asset quality, maintaining system share in terms of advances and deposits, adding diversity to income stream, sound CAR and strong governance framework are critical.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com