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VIS Maintains Entity Ratings of Al-Baraka Bank (Pakistan) Limited; Outlook revised to ‘Stable’

Karachi, June 28, 2019 (PPI-OT): VIS Credit Rating Company Limited has maintained the entity ratings of Al-Baraka Bank (Pakistan) Limited (ABPL) at ‘A+/A-1’ (Single A Plus/A-One). Long term rating of ‘A+’ denotes good credit quality and adequate protection factors; risk factors may vary with possible changes in the economy. Short term rating of A-1 depicts high certainty of timely payment and excellent liquidity factors supported by good fundamental protection factors while risk factors are minor. Outlook on the assigned rating has been revised from ‘Negative’ to ‘Stable’. The previous entity rating action was announced on June 29, 2018.

Revision in rating outlook reflects review period and projected improvement in profitability profile and capitalization indicators. Overall liquidity profile is adequate with reduction in depositor concentration levels and stable liquidity buffer. In line with VIS’s credit rating criteria, strong profile of sponsor has been incorporated in the standalone ratings of ABPL. ABPL is part of Al-Baraka Banking Group (ABG); a prominent Islamic Banking Group having diversified operations in 17 countries. The Islamic International Rating Agency (IIRA) have assigned ratings of BBB+/A3 (Triple B Plus/A Three) to ABG on the international scale. IIRA has also assigned ratings of BBB-/A3 (Triple B Minus/A Three) to Al Baraka Islamic Bank B.S.C., the major sponsor, on the international scale.

Financing portfolio is diversified with the same increasing by 6% during 2018. Growth in the lending portfolio was primarily in the consumer and CBSME segments. Given legacy non-performing exposures, infection in the portfolio is on the higher side. Credit growth in the ongoing economic environment is expected to remain prudent in the ongoing year while enhanced focus on recoveries is underway to improve asset quality indicators. Given the high ADR and weak macro-economic environment, close monitoring of exposures is warranted. Liquidity profile of ABPL has witnessed improvement due to reduction in depositor concentration levels. Capitalization indicators were compliant with regulatory requirements at end-March’2019. Internal capital generation along with issuance of Basel 3 capital instrument and management of risk weighted assets is planned to comply with increasing regulatory requirements.

Given the concerted efforts on cost rationalization, recoveries and portfolio rebalancing, ABPL posted significant jump in operating profits in 2018 vis-à-vis operating loss in 2017. Improvement in profitability profile will continue with VIS expecting operating profitability to continue strong growth momentum in 2019 as compared to 2018 driven by spread improvement and volumetric growth in earning assets aligning them with rating benchmarks. Quantum of overall profits will depend on provisioning charges on financing portfolio. Therefore materialization of planned recoveries is considered important.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873

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