PACRA Maintains Entity Ratings of Pakistan Kuwait Investment Company (Pvt.) Limited
Joint Venture Financial Institutions (JVFIs) are largely engaged in providing credit lines on turf common to commercial banks. However, limited growth in advances, over last many years, is evident of conservative risk appetite of these institutions. Key reliance on treasury function funded through borrowings from money market. Their ratings are mainly characterized by sovereign ownership, adequate standards of governance, and relatively conservative risk appetite. Over the last one decade, JVFIs at large have been relying more on the non-core income attributable to limited outreach in the market. The ratings of PKIC benefit from the company's strong financial profile emanating from sound risk absorption capacity and liquidity. Enhanced lending, during CY19 mainly in the last quarter, resulted in increased NIMR. The build-up of strategic equity investments in different companies provides a strong and stable income stream in the shape of dividends. Net profits are the main function of dividend income. Covid-19 has posed challenges to all segments of the economy, worldwide and domestically, most sectors are getting negatively impacted. The ramifications would continue to unfold, warranting vigilance and timely actions where needed. The central bank has taken well-tailored and comprehensive actions including reduction in key policy rates (625bps down since January 2020) and deferment of repayment obligations for a defined period. While reduction in interest rates would determine the institution’s profitability, these measures have cushioned the allied risks surrounding the credit exposures. The investment book recorded notable increase in last year; in line with the trend followed in industry. Treasury policy allows weighted average duration of investment portfolio up to three years whilst dictating effective monitoring of yield curve for future strategy. The company has focused on treasury operations where it is enhancing its participation in money market. The liquidity profile of the institution remains comfortable with access to financial institutions to support its treasury and lending operations. Strong equity base and minimal drag of NPLs on equity is a positive.
The ratings are dependent on the management's ability to sustain its financial profile while managing the associated risks. Management’s efforts to diversify its operations, finding a new niche for growth, while sustaining its profitability would remain critical.
Pakistan Kuwait Investment Company (Private) Limited was established in March 1979 as a joint venture between the Governments of Pakistan and Kuwait. It is equally owned by Government of Pakistan through the State Bank of Pakistan (SBP) and Government of Kuwait through Kuwait Investment Authority (KIA), representing their respective governments. The governments of Kuwait and Pakistan have been rated “Aa2 (Stable)” and “B3 (Stable)” respectively, by Moody’s in 2019. The overall control of the company vests with six-member board of directors including the CEO and five non-executive directors having equal representation from both governments. Mr. Mubashar Maqbool, Pak Kuwait’s MD, has diversified experience in Development, Commercial and Investment Banking and is associated with the company since March 2019. He has past track record in Corporate Banking, Corporate Finance, Project Financing, Commercial Banking, SME Banking as well as General Management. He is assisted by capable team.