VIS reaffirms broker management rating of Next Capital Ltd

February 10, 2025 (MLN): VIS Credit Rating Company Ltd. (VIS) has reaffirmed the Broker Management Rating of Next Capital Limited (NCL) at ‘BMR2++’.

The outlook on the assigned rating is ‘Stable’.

The previous rating action was announced on November 01, 2023.

The rating signifies strong external controls, as well as compliance and risk management.

Regulatory requirements, supervisory framework, internal controls, client relationships, HR, and infrastructure are considered sound, while financial management is deemed adequate.

NCL was incorporated in December 2009.

NCL caters primarily to equity broking services to domestic retail and high net worth (HNWI) clients, local institutions, and foreign broker-dealers.

Alongside, the company has a reputable presence in investment banking & corporate financial advisory business in Pakistan.

NCL, besides a head office based in Karachi, runs its retail operations through a branch in Lahore.

The Company holds a Trading Right Entitlement Certificate (TREC) issued by the Pakistan Stock Exchange Limited (PSX) for Trading and Self-Clearing Services.

External auditors of the company are Baker Tilly Mehmood Idrees Qamar Chartered Accountants and belong to the category ‘A’ on the approved list of auditors published by the State Bank of Pakistan (SBP).

The assigned rating reflects the Company's strong ownership and governance structure, supported by its status as a publicly listed entity and a board of directors comprising seven members, including two independent directors.

The governance framework is further enhanced by four board committees: Audit, Human Resources and Remuneration, Risk Management, and Investment, three of which are chaired by independent directors.

However, there is a notable overlap in membership across these committees.

The Company's internal control framework is considered strong, supported by established internal policies.

However, expanding the scope of these policies, including the development of a comprehensive conflict-of-interest policy, could further strengthen the framework.

Additionally, increasing the frequency of trade review procedures and implementing daily reporting of personal trade details to the compliance officer may enhance the Company's internal controls.

Assigned rating also takes note of the Company’s strong external control framework as well as compliance and risk management services.

While the Company's client services are considered sound, the customer grievance mechanism may be improved through greater visibility and enabling the submission of complaints through SMS text.

In addition, expanding business development initiatives may be considered to enhance the customer base.

HR & infrastructure of the Company is considered sound.

However, establishing an independent risk management department may further enhance this function.

In addition, increasing the frequency of disaster recovery exercises may improve the contingency measures of the Company.

The assessment of the Company's financial profile highlights challenges in profitability.

While FY24 saw higher operating revenues, driven by growth in brokerage revenue and the advisory and consultancy segment, brokerage income remained the dominant contributor to the revenue mix.

A high cost-to-income ratio continues to weigh on operating profitability, resulting in operating losses for the year.

The Company's liquidity profile is considered adequate, and its market risk remains low, supported by a reduction in proprietary investments during FY24.

However, the equity base is relatively small compared to peers.

Going forward, the expansion of the revenue base together with improvement in operational efficiency and liquidity position will remain important.

Copyright Mettis Link News