The Pakistan Credit Rating Agency Limited
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Saliha Sajid

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PACRA Assigns Final Rating to TFC II of JS Bank Limited

Rating Type Debt Instrument
Action Initial Preliminary
Long Term A+ A+
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect improving relative position of JS Bank in the country's competitive banking landscape. This stems from enhanced system share in deposit. The bank added a sizable amount of PKR 58bln to its deposit base YOY basis at Sep-17. The bank’s borrowings from financial institutions increased, alongside rise in SBP refinance. The increased liquidity has been deployed in advances (77% rise on YOY basis). The growth is substantial and needs continuous vigilance. The comforting factor is sizeable uptick in total investment book, of which government papers are dominant. The current NPLs absolute amount is low. The strategy of the bank is i) to foster penetration of existing network beyond 306 branches over the near-term; ii) spread advances book through different products over multiple sectors; iii) build non-fund based income; and iv) hold strength in treasury operations. The challenge to profitability is drying return of capital gains and reduced NIMR margin. JS Bank has adequate capital level (CAR at end-Sep17: ~10.7% primarily tier I). This is expected to improve after issuance of fresh Tier II.
Ratings are dependent on JS Bank's ability to maintain its growth continuously to establish itself in the medium-sized banking space of Pakistan. Meanwhile, upholding asset quality, maintaining system share in terms of advances and deposits, adding diversity to income stream, sound CAR and strong governance framework are critical.

About the Entity
JS Bank Limited (JSBL), incorporated in March 2006, commenced its banking operations on December 30, 2006. JSBL is a subsidiary (~70%) of Jahangir Siddiqui & Company Limited (JSCL). Other shareholders include Banks and Financial Institutions (~4%), and Foreign Investors (~3%) while the remaining stake is distributed amongst local individuals and other shareholders.
The overall control of the bank vests in the Board of Directors (BoD) including the CEO. The board is the combination of Independent Directors, Non-Executive Directors and Executive Director. Mr. Khalid Imran, the President/CEO of the bank, possesses substantial and well-rounded professional experience. He brings with him over 40 years of work experience in Pakistani and foreign banks. Mr. Basir Shamsie has been appointed as deputy CEO in May, 2017. He possess work experience of three decades, primarily in the banking sector.

About the Instrument
JSBL has issued unsecured, subordinated, and OTC listed TFCs of PKR 2,000mln on December 29, 2017. The tenor of this instrument is 7 years ending in 2024. Profit is based on average 6M-KIBOR Plus 140bps p.a. payable semi-annually in arrears. Major Principal Repayment (99.76%) would be in two equal semi-annual instalments of (49.88%) each, in the seventh year. JSBL retains the call option on profit payment date, which may be exercised, on or after five years of issue, subject to SBP’s approval.

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.