VIS reaffirms HBL's 'AAA' entity and Tier-2 TFC ratings while rating of ADT-1 instrument is reaffirmed at 'AA+' - Press Release issued by VIS Credit Rating Company Limited.

Karachi -- June 30, 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 (VIS) has reaffirmed the entity ratings of Habib Bank Limited (HBL) at 'AAA/A-1+' (Triple A/A-One Plus). The rating of existing Basel III compliant Tier 2 TFC of HBL (issued in February 2016) has been reaffirmed at 'AAA' (Triple A) while rating of HBL's Basel III compliant additional Tier-1 (ADT-1) TFC (issued in September 2019) has been reaffirmed at AA+ (Double A Plus). Outlook on all the assigned ratings is 'Stable'. Previous rating action was announced on June 28, 2019.

The assigned ratings incorporate HBL's position as the largest commercial bank in the country (asset base crossed 3 trillion in the outgoing year) with systemic importance, strong domestic franchise and diversified operations. Ratings also reflect strong financial profile as evident from robust liquidity, adequate capitalization and sound asset quality indicators. However, elevated exposure to credit risk due to significant impact of Covid-19 on already weak macroeconomic indicators may impact asset impairment ratios.

Despite higher provisioning charges over the rating horizon, VIS expects HBL's earnings profile to improve on the back of expected capital gains and normalization of non-recurring expenses. Profitability indicators are expected to align with rating benchmarks over the rating horizon. The ongoing Covid-19 pandemic has accelerated the pace of digital transformation. HBL's strategy over the last few years of enhancing digital presence and focusing on digital customer acquisition will be a source of competitive advantage for the Bank.

Overseas assets represent around one-tenth of total assets. During 2019, majority of core branches have seen a turn-around and return to profitability. Moreover, as part of a deliberate strategy, exit from 2 non-core locations was undertaken in 2019 while similar strategy is planned to continue in 2020. This along with closure of New York branch in 1Q20 is expected to improve core profitability from international operations. International strategy entails HBL taking advantage of its unique footprint, and facilitating global trade and payment flows in select growth corridors. Growth in international operations is targeted from Middle East and China. Focus on improving compliance systems, processes, governance and staffing has continued during the review period.

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