PACRA Maintains Entity Ratings of The Bank of Khyber

The ratings reflect Bank of Khyber’s sustained business profile, on an overall basis, as reflected by largely intact customer deposit system share (end-Dec21: 1.1%, end-Dec20: 1.2%). The incumbent leadership assumed the stewardship of the Bank and has devised a clear and prudent strategy for growth and performance improvement of the Bank. The management team is fully cognizant of the prevailing micro and macro challenges and aligned on the strategy to bring improvement in all the key indicators of the Bank. The deposit mix remained tilted towards saving deposits, while the CASA ratio witnessed improvement (CY21: 65.2%; CY20: 61.1%). Net markup income registered slight increase during the period. Further, Non-mark-up income recorded a downfall primarily due to loss on securities as against sizeable gains realized last year. Moreover, an enhancement in branch network has been a major dimension for the Bank in CY21 (CY21: 216; CY20: 179). Sustainability in net-mark up income continued enhancement in non-fund-based exposure and strengthened treasury operations are important for future years. The dividend payouts in the past had led to limited growth in the equity base of the Bank, however, the Bank prudently opted to only issue bonus shares for FY-2021 to shore up the capital. The Bank while having a cautious approach, intends to increase its exposure to Private Sector Advances. It remains vital for Bank to properly manage the credit risk, if any, arising from lending through government schemes. The Bank has further embarked upon improving efficiency and effectiveness in operating system through the implementation of widely used Core Banking Software T-24. Asset quality declined as reflected by NPLs to Gross Advances ratio (CY21:8.0%; CY20: 5.4%) whilst coverage diluted (end-Dec21: 62.9%, endDec20: 80.3%). The management has developed and started implementation of a well thought out strategy for reduction of NPLs and improvement of portfolio quality. The Investment book increased tilted towards Govt. papers. The Bank’s total CAR stands at 14.7% as of end-Dec21. Pakistan’s economy has gone through several varied phases in the last two years due to the COVID19 pandemic. The banking sector continued to flourish with high profitability. Going forward, the macro-economic environment is beset with myriad challenges due to heightened interest rates, tightening of demand, rupee depreciation, and higher inflation. This has repercussions for the several segments of the economy.
The ratings are dependent on the bank's ability to hold its risk profile while maintaining its relative market position. Moreover, the Bank enjoys continued support of its strong sponsors that can have a positive impact on Bank’s rating going forward.

About the Entity
The Bank of Khyber (BoK) was established in 1991 under the BoK Act and was awarded the status of a scheduled bank in September 1994. BoK was established with a vision to gradually promote Islamic banking. At present, 110 of its branches function as dedicated Islamic banking branches, whereas 106 cater to conventional banking. The Government of Khyber Pakhtunkhwa (KP) has a majority stake in BoK (70.2%), whereas, Ismail Industries' stake is 24.4% in BoK. The Bank enjoys relationship support with the KPK government. After the the induction of two new directors in December 2021 in place of three outgoing board members, the composition of the board comprises of seven board members including Chairman and CEO. Mr. Shahab Ali Shah is the Chairman of the board since May 21. Mr. Muhammad Ali Gulfaraz took the charge as Managing Director on August 12, 2021. Mr. Ali Gulfaraz brings with him an extensive experience of 25 years in global corporate and investment banking. He also possessed in-depth professional skills in corporate finance, financial analysis, credit risk, and capital markets. Other senior management team consists of seasoned professionals.