The Pakistan Credit Rating Agency Limited
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Muhammad Fahad Iqbal

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PACRA Maintains Entity Ratings of The Bank of Khyber

Rating Type Entity
(26-Jun-21 )
(26-Jun-20 )
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect Bank of Khyber’s sustained business profile, on an overall basis, as reflected by largely intact customer deposit system share (end-Dec20: 1.2%, end-Dec19: 1.3%). The deposit mix remained tilted towards saving deposits, while the CASA ratio witnessed a slight adjustment (CY20: 61.1%; CY19: 62.8%). Markup income witnessed an increase attributable to higher advances where asset yield recorded a decline mainly due to rationalized market interest rates. Non-mark-up income recorded growth due to gain booked from treasury operations which supplemented the profitability. Spread witnessed slight decline (end-Dec20: 3.3%; end-Dec19: 3.9%). Sustainability in net-mark up income continued enhancement in non-fund-based income and strengthened treasury operations are important for future years. The Bank has been paying healthy dividends, though higher retention of profits will provide further strength to equity. The Bank while having a cautious approach, intends to increase its exposure to Private Sector Advances. It remains vital for Bank to harness credit risk, if any, arising from lending through government schemes. The Bank has further embarked on improving efficiency and effectiveness in the operating system through the implementation of widely used Core Banking Software T-24. The Bank’s concentration in advances remained high with the top 20 customers. Non-Performing Loans inched up as reflected by NPLs to Gross Advances ratio (CY20: 5.4%; CY19: 4.4%) but good coverage (end-Dec20: 80.3%, end-Dec19: 84.2%) is in place to limit the risk. The Bank needs to monitor and contain large exposure, compared to Bank’s own size. Continuous monitoring will complement the efforts to arrest the portfolio infection. It is vital to hold the current risk profile while improving the relative market position. The Investment book declined, tilted towards Govt. papers. The Bank’s total CAR stands at 19.3% as at end-Dec20. 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.

About the Entity
The Bank of Khyber (BoK) was established in 1991 under the BoK Act and was awarded the status of a scheduled bank in September 1994. BoK was established with a vision to gradually promote Islamic banking. As at Mar-21, 92 of its branches function as dedicated Islamic banking branches, whereas 87 cater to conventional banking. The Government of Khyber Pakhtunkhwa (GoKP) has a majority stake in BoK (70%), whereas, Ismail Industries' stake is 24% in BoK. The bank enjoys relationship support with the KPK government. The Board comprises eight members including the CEO, five out of eight are government people out of which one is executive director, two are non-executive directors and two are independent directors. Board composition is in line with the parameters set in the BoK Act. Miss. Saleha Asif has been appointed as an independent director on January 26, 2021. Mr. Shahab Ali Shah has been appointed as the Chairman of the board on May 27, 2021, and Mr. Ihsan Ullah Ihsan is the Acting CEO of the bank since December 9, 2019. He is a seasoned banker with twenty-six of diverse experience mainly in the banking industry. He was a Senior Executive Vice President/Chief Risk Officer of the Bank. Other senior management is consisting 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.