The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of The Bank of Khyber

Rating Type Entity
(24-Dec-19 )
(25-Jun-19 )
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The lending portfolio of BoK continued ascending trajectory when NPLs largely remain stagnant; asset quality improved marginally. BoK’s ADR increased to ~60.3% (CY18: 50.5%). The bank’s funding base includes customer’s deposits and borrowings; CA proportion slightly decreased 22.7% at end- Sep19 (end-Dec18: ~23.5%) while SA increased to 37.6% in 9MCY19 (CY18: ~33%). Deposit base grew with contribution by savings deposit. The bank has dependence on large ticket deposits from Government of Khyber Pakhtunkhwa (GoKP) and its related institutions. During 9MCY19, lesser reliance on borrowings from financial institutes resulted in marginal improvement in cost structure; inched up spread. Other operating income witnessed decline attributable to fee and commission income and gain on investments. The slimming total net revenue coupled with maintained cost structure resulted in declined profitability. In the current economic scenario, recovery of NPLs seems a challenge. The ratings incorporate association of the bank with the Government of Khyber Pakhtunkhwa (GoKP). It is expected to be cushioned with future profits. The bank needs to beef up and elaborate its investment policy. The bank’s total equity stands at PKR 14,407mln (CY18: PKR 11,705mln). The bank's CAR stand at 12.6% – The legal requirement as on 31st Dec,2019 is going to be 12.5%. Profitability in operations is a crucial.
The ratings are dependent on bank's ability to hold its risk profile, while maintaining its relative market position. Improvement in the technology platform is critical to foster the control environment including reporting framework. Meanwhile, any significant infection in asset quality, in the wake of significant expansion in the loan book, and/or any intervention compromising the governance standards would impact negatively.

About the Entity
The Bank of Khyber (BoK) was established in 1991 under the BoK Act and was awarded status of a scheduled bank in September 1994. BoK was established with a vision to gradually promote Islamic banking. At present, 84 of its branches function as dedicated Islamic banking branches, whereas 85 cater conventional banking. The Government of Khyber Pakhtunkhwa (GoKP) has majority stake in BoK (70%), whereas, Ismail Industries stake is 24% in BoK.
BOK’s board comprises eight members, out of which four are GoKP nominees. The remaining includes one representative of Ismail Industries, while two are independent members and the Managing Director. Dr. Shahzad Khan Bangash, has ceased to be the Chairman of the Bank. Currently there is no Chairman of the Bank. Mr. Ihsan Ullah Ihsan has been appointed as the new acting CEO of bank on December 9, 2019. He is a seasoned banker with twenty six of diverse experience mainly in banking industry. He was an Executive vice president/Credit risk officer of bank since Jun, 18. Other senior management is consist of seasoned professionals.

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.