PACRA'S RATING REVIEW

OF COMMERCIAL BANKS

 

Lahore: November 23, 2001

As part of its ongoing rating review process, PACRA has reviewed the performance of the banking sector in the current financial year and has the following comments:
a)	In the half-year ended June 30, 2001, (1HY01), most of the banks registered impressive growth in size, mainly stemming from expansion in the deposit base. This growth rate was, however, not sustained in the quarter ended September 30, 2001 (3Q01) in the wake of growing economic uncertainty and instability that ensued after the September 11 terrorist attacks in the U.S.
b)	While the 1HY01 witnessed some increase in credit demand with consequential increase in the advances portfolio, this trend was not maintained in 3Q01. Moreover, given the sluggish economy, banks have generally preferred to deploy their funds in less risky avenues like investments in government securities and TFCs, as well as placements with financial institutions. Considering the current operating environment, this trend is likely to persist during the remaining part of the year. While this is expected to improve liquidity in the sector, the asset deployment pattern would weigh down profitability. Another important factor that could lower profitability is the declining spreads. Although the impact may be limited by the year-end, it could accentuate in FY02.
c)	Other operating income - primarily constituting foreign exchange and import/export-related business - has been a major contributor towards the net profit of most banks. While the trend was maintained in 3Q01, the same is not expected to be sustained in the last quarter on account of reduced volume of international trade transactions.
d)	The asset quality of the loan portfolio of most banks has remained almost unchanged during 1HY01 and this trend is likely to be maintained. However, going forward, the uncertain local operating environment compounded by global economic conditions - especially declining textile exports - could put some strain on the quality of the loan portfolio.
2)- PACRA's rating universe includes 12 commercial banks. Out of these, 9 banks have disseminated their ratings publicly. After a bank-wise rating review, these ratings are re-affirmed as under:

Sr. No.	Bank	Long-Term	Short-Term
1	AlBaraka Islamic Bank (Pakistan Branches)	A	A1
2	Askari Commercial Bank Ltd.	AA	A1+
3	Bank Alfalah Ltd.	AA-	A1+
4	The Bank of Punjab	A	A1
5	Bank AL-Habib Ltd.	AA	A1+
6	Metropolitan Bank Ltd.	AA+	A1+
7	Prime Commercial Bank Ltd.	A	A1
8	Soneri Bank Ltd.	AA-	A1+
9	Union Bank Ltd.	A-	A2