PACRA PLACES CRESBANK RATINGS

ON RATINGWATCH NEGATIVE

 

Lahore:  October 02, 2001

 

The Pakistan Credit Rating Agency (PACRA) has placed the ratings of Crescent Investment Bank Ltd. (CresBank) on RatingWatch with negative outlook.

A long-term rating of "A+" (single A plus) and a short-term rating of "A1" (A one) were assigned to CresBank on 7th June 2001, after factoring in the bank's reported performance till the end of first quarter of 2001. The ratings represented PACRA's assessment that creditors and depositors of the bank were exposed to a low level of risk, as the capacity of the bank to meet its financial commitments was considered strong. While PACRA was fully aware of the high exposure of CresBank to the stock market and the consequential risk involved, reliance was placed on management's representation that plans were in hand to progressively reduce the exposure to the size of the bank's equity base. It was also recognized that any quick and forced liquidation of the large equity portfolio could have a significant adverse impact on the bank's profitability. At the same time, however, unrecognized gains on other investments - US$ Bonds and Swap Contracts - were expected to provide a cushion against any unforeseen losses. This position notwithstanding, PACRA's ratings could not have foreseen the possibility of a sharp and sudden decline in stock market prices - following the 11th September events - and the withdrawal of credit facilities in the market for financing carry-over transactions, the two critical factors that have adversely affected the liquidity and capital structure the bank.

PACRA has discussed the implications of these events and effects on the CresBank operations with the management and reviewed the various options that are being considered for evolving a strategy for the future. PACRA recognizes that it will take a while before precise details are worked out, the ratings have, therefore, been placed on the RatingWatch with negative outlook, pending a final rating announcement.