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VIS reaffirms HBL’s ‘AAA’ entity and Tier-2 TFC ratings; finalizes ‘AA+’ rating for proposed issue of ADT-1 instrument

Karachi, June 28, 2019 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Habib Bank Limited (HBL) at ‘AAA/A-1+’ (Triple A/A-One Plus). The rating of the existing Basel III compliant Tier 2 TFC of HBL (issued in February 2016) has also been reaffirmed at ‘AAA’ (Triple A). Upon review of signed legal documents, the rating of HBL’s proposed Basel III compliant additional Tier-1 (ADT-1) TFC has been finalized at ‘AA+’ (Double A Plus). The Outlook on all the assigned ratings is ‘Stable’. The previous rating action was announced on December 31, 2018.

The assigned ratings incorporate HBL’s position as the largest commercial bank in the country with systemic importance, strong franchise and diversified operations and improving corporate governance framework. Ratings also reflect strong financial profile as evident from robust liquidity, healthy capitalization and sound asset quality indicators. While earnings profile is expected to improve in the ongoing year, the same is only expected to align with rating benchmarks over the medium term. Ratings remain dependent on maintaining healthy capital buffers, improving earnings profile and maintaining asset quality indicators in line with rating benchmarks given the challenging macro-economic outlook.

Overseas assets represent around one-tenth of total assets. During 2018, the International Operations continued to focus on consolidation and de-risking. Non-core locations have been identified and progress has been made on exiting from the same. Focus on improving compliance systems, processes, governance and staffing continued. Growth in international operations is targeted from Middle East and China.

After increasing at a CAGR of 20% over the last 3 years (2015-2018), credit growth is expected to slow down in the ongoing year. Gross advances portfolio recorded a growth of 25% in 2018. Corporate segment represents around three-fifths of the domestic financing portfolio where the Bank enjoys market leadership position. The Bank will continue to focus on deepening relationships through aggressive cross-sell while strong growth in trade volumes is targeted. In absolute terms, consumer portfolio crossed Rs. 50b and the bank aims to achieve market leadership across products. Despite growth, infection in the consumer portfolio remains well below industry norms. Overall asset quality indicators remain sound with declining gross infection and healthy provisioning coverage. Given the reduction in PIB and equity exposure along with decline in duration of the PIB portfolio, exposure to market risk has declined on a timeline basis.

HBL caters to a sizeable and growing customer base of over 11 million customers which is more than double that of its major private sector competitor. Ratings incorporate the Bank’s robust liquidity profile as evident from a sizeable and growing customer base and cost effective domestic deposit mix. However, depositor concentration levels continue to remain on the higher side. Significant liquid assets carried on the balance sheet also support assessment of liquidity profile of the Bank. The Bank’s Konnect platform, which primarily targets the unbanked and underbanked population of the country, was launched in July’ 2018 and the Bank has been able to on-board over 1.4 million new customers in 2018. Enhancing digital presence and accelerating the pace of digital customer acquisition will be amongst the top priorities for 2019.

HBL has been designated a Domestic Systemically Important Bank (D-SIB) by the State Bank of Pakistan and is required to maintain an additional common equity tier-1 (CET-1) of 2% in the form of a higher loss absorbency surcharge. With the implementation of D-SIB buffer, cushion over CET-1 requirement has reduced, making a portion of the Tier-2 capital ineligible and resulting in a decline in overall CAR at end-March’2019. Despite increasing regulatory capital requirements (full 2.5% impact of CCB at end-2019) and implementation of D-SIB framework, focused management of RWAs along with higher internal capital generation vis-à-vis 2018 and issuance of ADT-1 instrument are expected to result in capitalization indicators remaining in compliance with the benchmark for the assigned ratings.

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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