The Pakistan Credit Rating Agency (Pvt) Limited

BANKING

BANK AL HABIB LIMITED (BAHL) Ratings (May 2001) Bank AL Habib Limited Applicable to senior unsecured creditors Summary Data

PKR (mln) 31/12/00 31/12/99 Total Assets 24,138 19,870 Equity 1,310 1,169 Net Income 153 153 ROA % 0.7 0.8 ROE % 12.4 14.0 Equity/ Total Assets %

5.4 5.9

SBP CAR 8.6% 11.8 Analysts Hassaan Mirza +92 42 5869504 hassaan@pacra.com M. Azam Sheikh +92 42 5869504 azam@pacra.com

Background The third largest of eleven private commercial banks established as a result of financial sector reforms initiated in the early nineties, Bank AL Habib Limited’s (BAHL) sponsors are members of the Habib family – the oldest, and arguably the most eminent name in Pakistan’s banking circles. They are active in the management of the bank, with six positions on the BOD, including the chief executive, and backed by a team of experienced professionals that has been with the bank since its inception. The bank’s main activities are short term lending, mainly trade finance related and seasonal running finance, and investing in GoP securities. Its future strategy envisages continued, gradual growth through the expansion of the currently 32 strong branch network, all the while maintaining the Habib hallmark of a conservative risk profile.

Support The geographically diversified and sizable resources of the Habib group, as well as an intention to stand by ‘their’ bank, indicates that support would be forthcoming, should it prove necessary.

Assessment Volume growth and expansion of the credit portfolio allowed the bank to reverse a declining trend in net interest mark-up revenue − attributable to the more pronounced fall in asset yields, in the scenario of downward realignment of interest rates − over the last couple of years. Other operating income, mainly trade related fee income and foreign exchange dealing income, registered a sharp increase, and is forming a growing, stable source of revenue for the bank. The adverse impact of all charges post total net revenue; however, negated the impact of the aforementioned improvement. Administrative expenses and a larger loan loss provision (albeit, still relatively low) constrained net income to last year’s level. Going forward, earnings prospects appear positive, given the inclining trend in interest rates, and the impact of strong volume growth during the second half of FY2000. The most remarkable aspect of BAHL’s profile is its excellent asset quality, achieved and sustained through the consistent application of low-risk appetite credit policies. While the loan book has recorded continued strong growth, non-performing loans have been contained at around a very low 1%. Individual concentration risks are adequately managed; however, around 63% of advances relate to the textile sector. The potential risk is mitigated through careful selection of counter-parties − borrowers with established track records, and the personal resources to back their projects − and concentrating on self-liquidating export finance. With asset-liability maturities almost perfectly matched, both liquidity and interest rate risks are considered low. The bonus issue for FY2000 places the bank comfortably near the Rs 1 bln minimum paid-up capital requirement to be met by January 2003. While the capital adequacy ratio for the bank declined to 8.6% (YE1999: 11.8%), and is below the level of most peers, it remains above the prescribed limit of 8%. More importantly, it is considered adequate given the risk profile of the asset portfolio. Excellent asset quality resulting from a conservative, low-risk style of management, and the commitment and capacity of the sponsors to support BAHL − providing further assurance for depositors − are key factors in the ratings assigned. PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. PACRA shall owe no liability whatsoever to any loss or damage caused by or resulting from any error in such information. None of the information in this document may be copied or otherwise reproduced, stored or disseminated in whole or in part in any form or by any means whatsoever by any person without PACRA’s written consent. Our reports and ratings constitute opinions, not recommendations to buy or to sell. Tel: 92 (42) 5869504 Fax: 92 (042) 5830425 www.pacra.com

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