KARACHI: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Habib Bank Limited (HBL) at ‘AAA/A-1+’ (Triple A/A-One Plus).
In line with JCR-VIS’s standard notching criteria, the Basel 3 compliant Tier 2 TFC rating of HBL has been upgraded to ‘AAA’ from AA+ (Double A Plus). Outlook on all the assigned ratings has been revised to ‘stable’ from ‘negative’. The previous rating action was announced on June 29, 2018.
The assigned long-term ‘AAA’ rating indicates the highest credit quality; the risk factors are negligible, being slightly more than the risk-free government debt.
Short-term rating of ‘A-1+’ indicate the highest certainty of timely payment; short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding.
The reaffirmation of the ratings and the change in outlook to stable is driven by JCR-VIS’s assessment of improved financial performance metrics in terms of capitalization and asset quality indicators while robust liquidity profile has largely been maintained.
Moreover, improvements being undertaken on the corporate governance framework in general and compliance front in particular have been noted positively.
Revision in outlook reflects JCR-VIS’s expectation that the bank would be able to sustain higher capital buffers as it continues to focus on capital management and improve earnings profile over the rating horizon.
The assigned ratings also incorporate HBL’s position as the largest commercial bank in the country with systemic importance, strong franchise and diversified operations.
Despite a sizeable settlement payment with respect to New York operations and significant growth in advances portfolio, capitalization indicators have improved vis-à-vis 2016 due to conservative dividend payout and focused management of Risk Weighted Assets.
Issuance of planned additional Tier-1 instrument would further strengthen capitalization indicators. Robust liquidity profile is evident from a sizeable and growing customer base, largest in the banking sector, and cost-effective domestic deposit mix. Significant liquid assets carried on the balance sheet also support assessment of liquidity profile of the bank.
Moreover, asset quality indicators have continued to improve with gross infection at end-Sep’2018 being the lowest over the last five years.
Profitability indicators have depicted weakening due to international operations and sizeable non-recurring items (remediation and pension cost, exchange losses on foreign currency borrowing and consultancy and legal expenses). Ratings incorporate JCR-VIS’s expectation that profitability indicators would gradually improve in 2019 on the back of balance sheet growth and spread improvement (full impact expected from 3QCY19) and significant reduction in non-recurring expenses.
From 2020 onwards, JCR-VIS expects profitability indicators to revert to normalized levels and become compliant with JCR-VIS’s profitability benchmark for the assigned ratings.