VIS Maintains Entity Ratings of BMA Capital Management Limited

Karachi, April 02, 2019 (PPI-OT): VIS Credit Rating Company Ltd. (VIS) has maintained the entity ratings of BMA Capital Management Limited (BMA) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. The long term rating of ‘A-’ signifies good credit quality with adequate protection factors. Risk may vary slightly from time to time because of economic conditions. Short term rating of ‘A-2’ depicts good certainty of timely payment where liquidity factors are sound and good access to capital markets. The previous rating action was announced on March 6, 2018.

The assigned ratings factor in BMA’s long-standing experience in securities broking business, existing market position and adequate leverage indicators. Revision in rating outlook reflects weakening in sector outlook and resultant pressure on profitability profile and capitalization levels. Ratings also factor in low diversification in revenue streams with equity brokerage being the primary business.

Performance of the equity market has remained dismal over the last 22 months with trading volumes depicting a significant decline, largely owing to aggressive foreign selling, sizeable current account deficit and rising fiscal deficit and slow-down in GDP growth. Given the operating environment, players with efficient and variable cost structures focusing on high margin business and diversification in revenue streams are expected to fare better vis-à-vis peers. Going forward, focus of brokerage companies is expected to remain on cost rationalization, increased portfolio diversification into derivatives and focus on higher margin business. Nevertheless, sector outlook is expected to remain challenging. Going forward, BMA plans to maintain minimal exposure to proprietary book (limited exposure to market risk) while continuing to operate with cap on underwriting exposure in relation to adjusted equity.

Given limited diversification in revenue streams and decline in market volumes, BMA incurred operating losses during FY18 and HFY19. Going forward, management plans to undertake cost rationalization initiatives, increase retail commissions through customer base and branch network expansion, and addition of several broker dealers to international client panel. Equity base of the company has depicted a declining trend on account of increase in accumulated losses and dividend payout. Going forward, trend in operating performance and capitalization levels will be key rating drivers.

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
Email: bilal@jcrvis.com.pk
Website: http://jcrvis.com.pk/