The Pakistan Credit Rating Agency Limited
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Sanna Khan

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PACRA Downgrades Entity Ratings of Escorts Investment Bank Limited

Rating Type Entity
Action Downgrade Maintain
Long Term BB BBB
Short Term B A3
Outlook Negative Stable
Rating Watch - -

EIBL is experiencing deterioration in its business and financial profile. This has severely diminished its risk absorption capacity- also the bank has not been able to meet minimum equity requirement of PKR 750mln. The management has not been able to arrest declining trend in performance. The quantum of loss has gone up significantly in recent periods eroding the bank’s equity. The bank’s woes primarily arise from squeezing size of earning assets, whereas non-earning assets now dominate its asset base. Given reduced equity base, the assets are mainly funded through deposits. Consequently the bank has increased liquidity gap. It would be challenging to meet sizeable deposit withdrawal call.
The management is putting in multiple efforts to cure the situation. The focus is on arranging fresh equity through a new partner. Herein, timeliness is critical. Any significant delay would magnify the bank's challenges and may put pressure on ratings. Continuous erosion in equity, in turn risk absorption capacity, is highlighting urgency of break-even on a sustainable basis. In this regard, curtailing unfavorable gap of earning assets vis-a-vis interest bearing liabilities remains important.

About the Entity
EIBL, incorporated in 1996, is listed on Pakistan Stock Exchange. The bank is majority owned (71%) by Bashir Family, directly by individuals and through a group company - ESSEM Power (Pvt.) Limited. Escorts group has interests in different sectors - Investment Banking, Brokerage, Electricity Meters manufacturing, and Hospitality. The group has supported EIBL in the form of deposits and channelization of the group's cashflows through the bank. EIBL has a wholly owned subsidiary – Escorts Capital Limited (ESCAP) - that is engaged in providing equity brokerage services. The performance of ESCAP has not been satisfactory.
Currently the Board of Directors (BoD) comprises five members including CEO and four other non-executive while two casual vacancies are yet to be filled. Thus, there is no independent director present on the board. Mr. Bairam Qureishy is the Chairman of the board since 2011. Ms. Shazia Bashir - taking over as CEO in April 2010 has been associated with the bank since its inception.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.