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The Pakistan Credit Rating Agency Limited
Press Release

Date
25-Jun-21

Analyst
Timnat Thomas
timnat.thomas@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Rating of JS Bank Limited | TFC II

Rating Type Debt Instrument
Current
(25-Jun-21)
Previous
(29-Jun-20)
Action Maintain Maintain
Long Term A+ A+
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect the relative position of JS Bank in the country's competitive banking landscape. This stems from largely intact customer deposit system share (end-Dec20: 2.4%, End-Dec19: 2.3%). Funding base comprising borrowings and deposits where term deposit witnessed a notable increase in CY20. Meagre increase in advances recorded attributable to risk-averse approach. NPLs witnessed a continued uptick; which is a concern. The bank has assembled a highly experienced and qualified top management team to head various departments. Markup income witnessed an increase attributable to the enhanced investments. The commendable increase recorded in non-mark- up income which in turn supplemented the profitability. The bank was able to clock in good
profitability in CY20 as compared to the last two years. The bank has achieved internal reorganization; this has been done to focus the targeted areas of growth while meeting the associated challenges. The bank's strategy encompasses creating a pull strategy to create a more balanced approach to customer acquisition and refurbished digital platform by offering various unique solutions to customers. Further strengthening in risk framework is being ensured through segregation of credit and risk function into sub-categories based on functions and geography. The bank expects the profits to be boosted from growing direct and ancillary business. On a stand-alone basis, total CAR stood at 12.77% (Tier-I at 10.22% as at Dec20) needs to beef up to make room for future growth.
COVID-19 is an ongoing challenge. While it has taken a toll on many businesses, its ramifications are still unfolding. The proactive measures are taken by the regulators and other concerning bodies have mitigated the potential damages much anticipated from this pandemic. As a result, the banking industry remained protected and in fact posted record profits. Vigilance is required as the loan repayment cycle remains amid variants of the pandemic continue to re-emerge. Ratings are dependent on JS Bank's ability to sustain its profitability to support the internal generation of capital. Meanwhile, upholding asset quality, maintaining system share in terms of advances and deposits, adding diversity to an income stream, sound CAR, and strong governance framework is critical.

About the Entity
JS Bank Limited (JSBL), incorporated in March 2006, commenced its banking operations on December 30, 2006. JSBL is a subsidiary (~75%) of Jahangir Siddiqui and Co. Limited (JSCL), whereas the rest is widely spread. The overall control of the bank vests in the Board of Directors (BoD) including the CEO. Mr Basir Shamsie joined as CEO in July 2018. He possesses work experience of more than 27 years, primarily in the banking sector.

About the Instrument
JSBL issued a second rated, privately placed, unsecured, subordinated TFC on Dec-17 of amount PKR 2bln to support Tier-II capital for complying with the CAR requirement prescribed by the SBP. The funds so raised were planned to be utilized in JSBL's business operations. The tenor of the instrument is 7 years. The profit is being paid semi-annually in arrears on the outstanding principal amount at the rate of 6M-KIBOR plus 140bps. Major Principal Repayment (99.76%) would be in two equal semiannual instalments of (49.88%) each, in the seventh year. The bank retains the call option on the profit payment date, which may be exercised, on or after five years of issue, subject to SBP’s approval. The instrument is unsecured and subordinate as to the payment of principal and profit to all other indebtedness of JSBL, including deposits.

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.