JCR-VIS revises entity ratings of Burj Bank Limited to A-/A-2

Karachi, June 29, 2015 (PPI-OT): JCR-VIS Credit Rating Company Limited has revised the entity ratings of Burj Bank Limited (BBL) from ‘A/A-1’ (Single A/A-One) to ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings continues to be Negative. The previous rating action was announced on June 30, 2014.

As of March 31, 2015, BBL stands short of the minimum capital requirement (MCR) stipulated by the State Bank of Pakistan (SBP) by Rs. 5.2b. BBL is in talks with potential investors for induction of fresh capital. The bank is confident of achieving significant development by July end with regards to capital injection; however, if tangible progress is not achieved within the given timeline, ratings may be faced with further downward pressure.

The bank had projected break-even for FY14; however, due to non-compliance with MCR and the corresponding floor on Capital Adequacy Ratio (CAR), the bank was not able to enhance its earning assets to a level sufficient to absorb the cost base. Moreover, balance sheet footing of the bank experienced significant contraction in the last quarter of FY14 as the bank had to call-back some of its loan facilities, liquidate placements and some investments in order to meet call on deposits, as a result of external factors.

Cost of deposits of the bank for 2014 was amongst the highest in the banking sector; management is making efforts to curtail the same. With capital shortfall continuing to place restriction on growth in assets and a declining interest rate scenario exerting pressure on earnings, the bank’s profitability is likely to remain under stress. Achievement of break-even in FY16, as now envisaged by management, is dependent on timely injection of capital.

While overall loan portfolio stood lower on a timeline basis, the bank expanded its consumer portfolio in line with its long-term business strategy. Given that consumer loan book has been built only recently, quality of exposures will be tested as the portfolio seasons. Over half of the loan book is represented by corporate lending, where provisioning against reported non-performing exposures has largely been absorbed.

For more information, contact:
Ms. Sobia Maqbool
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk

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