VIS reaffirms entity ratings of Bank of Khyber

July 05, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Bank of Khyber (BOK) at ‘A+’ for long-term and ‘A-1’ for the short term with a stable future outlook, a latest press release issued by VIS showed.

A long-term rating of ‘A+’ denotes good credit quality with adequate protection factors.

A short-term rating of ‘A-1’ indicates high certainty of timely payment with excellent liquidity factors supported by good fundamental protection factors.

The previous rating action was announced on June 30, 2022.

The ratings assigned to BOK reflect its shareholding structure as the majority stake (70.2%) is held by the sub-sovereign, the Government of KPK followed by Ismail Industries Limited (24.4%).

The ratings take into account the impact of downward movement in net worth and profitability in the outgoing year owing to a sizable deficit booked on investments and high operating expenses incurred on account of branch network growth and capacity building.

However, the subsequent improvement in the profitability and efficiency indicators evidenced during the ongoing year is in built into the assigned ratings.

The bank is focused on enhancing its digital footprint for better customer experience and portfolio diversification.

Given instances of fresh infection reported, weakening of asset quality indicators on account of the impaired repayment capacity of businesses and obligors amid weak macroeconomic indicators remains a key concern from the rating perspective.

BOK’s liquidity profile is sound and has improved during the review period, as evidenced by sizable coverage of liquid assets by deposits and borrowings.

Moreover, additional liquidity available through the growth of deposits was also channelized towards liquid avenues as the advances to deposit ratio declined in the ongoing year.

Further, the concentration risk on the deposit side is also reduced on a timeline.

The largest deposit pertained to the government of KPK; however, this high-cost deposit was slightly tapered off during the outgoing year.

In addition, asset-maturity mismatch exists in various buckets; however, liquidity risk arising from withdrawals is limited given that the largest depositors are public/sub-sovereign account holders.

While declining on a timeline, the Capital Adequacy Ratio (CAR) is regulatory compliant and adequate for the assigned ratings; however, it needs to be recouped to release the developing pressure on ratings.

The ratings capture the consolidation strategy opted by the management for both lending and investment portfolios for maintaining the CAR of the bank at desired levels.

Moreover, the ratings remain dependent on improvement in asset quality indicators and market risk management of investment portfolios.

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