VIS Reaffirms Entity Ratings of Al-Baraka Bank (Pakistan) Limited - Press Release issued by VIS Credit Rating Company Limited.

Karachi -- June 29, 2020 (PPI-OT)

Following is the text of press release issued by VIS Credit Rating Company Limited

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VIS Credit Rating Company Limited has reaffirmed 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 ratings is 'Stable'. The previous entity rating action was announced on June 28, 2019.

The assigned ratings incorporate improvement in profitability and liquidity profile of the Bank while ABPL has achieved compliance with regulatory Capital Adequacy Ratio requirement due to capital fund by the major sponsor. Ratings are constrained by weak asset quality indicators, elevated exposure to credit risk due to deteriorating macroeconomic indicators and sizeable slowdown expected in GDP growth due to impact of Covid-19 and room for improvement in deposit concentration and mix. In line with VIS's credit rating criteria, strong profile of sponsor has been incorporated in the standalone ratings of ABPL. Continuity of strong sponsor support will remain an important rating consideration.

ABPL pursued a conservative lending strategy in 2019 with growth in financing portfolio largely manifested in corporate (sovereign, low risk weight and cash backed exposures) and consumer segment while CBSME portfolio declined. While financing mix is diversified, asset quality indicators remain weak as reflected by high net infection and low provisioning coverage due to sizeable FSV benefit availed by the Bank. Regulatory relief measures undertaken by SBP to promote financial stability, ensure continued credit supply to the economy and maintain confidence in the banking system have been received positively and are expected to delay the impact of prevailing headwinds on portfolio asset quality indicators.

However, exposure of banking sector to credit risk is elevated due to significant impact of Covid-19 on...