Dried capital gains pose challenge to profitability of JS Bank: PACRA

February 22, 2019: Pakistan Credit Rating Agency (PACRA) has assigned initial debt instrument ratings to JS Bank Limited | TFC Tier 1 at ‘A’ for long-term, with a stable outlook forecast.

According to the rating agency, the ratings reflect improving relative position of JS Bank in the country's competitive banking landscape.

This stems from enhanced system share in deposit and advances. The bank was able to maintain its customer deposit base at 9MCY18.

The bank’s borrowings from financial institutions decreased. The increased liquidity has been deployed in advances (26% rise on YOY basis).

The growth is substantial and needs continuous vigilance. NPLs have emerged in the recent period, which is a concern.

The strategy of the bank is i) to foster penetration of existing network beyond 323 branches over the near-term; ii) spread advances book through different products over multiple sectors; The Bank has designed a broad spectrum of new products. iii) build non-fund based income; and iv) hold strength in treasury operations.

The challenge to profitability is dried return of capital gains. The bank expects the profits to be boosted from growing direct and ancillary business.

The bank is facing a challenge on its CAR. The management is pursuing another issue of bonds-Tier I this time to bolster its CAR. It would only enable it to comply with regulatory requirement for December 2018. Further room need to be created.

 Ratings are dependent on JS Bank's ability to maintain its growth continuously to establish itself in the medium-sized banking space of Pakistan.

Meanwhile, upholding asset quality, maintaining system share in terms of advances and deposits, adding diversity to income stream, sound CAR and strong governance framework are critical.

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