PACRA Maintains Broker Management Rating of Habib Metropolitan Financial Services Limited

Habib Metropolitan Financial Services Limited (“HMFS” or “the Company”) is a public limited company primarily providing the services of equity brokerage to individuals and leading financial institutions. In FY23, tough economic conditions, high inflation, and interest rates had a considerable impact on the market. However, the first quarter of FY24 witnessed a noteworthy shift. Market volumes remained strong, leading to an upturn in overall market performance and a boost in brokerage revenue. This growth trend appears to be ongoing, revitalizing investor confidence and setting the stage for positive market indicators. The rating incorporates the business acumen of the primary sponsors, Habib Metropolitan Bank Limited, the experienced management team, and the availability of a client services platform with research reports available to customers. The governance framework is considered satisfactory; however, the inclusion of independent directors with relevant experience would strengthen corporate governance. HMFS has made a significant addition to its organizational structure this year, with the launch of its online sales department aimed at capturing retail clients. The assigned rating also takes into account sound internal controls, primarily attributed to the presence of a dedicated compliance department within the Company, with adequately documented and disseminated internal policies. HMFS has an in-house internal audit department, which strengthens the Company's control framework. The Company has established rigorous protocols regarding risk assessment by implementing KYC, CDD, AML, CFT, and whistleblowing Policies. The market risk is limited, as HMFS does not maintain any proprietary trading books. The brokerage revenue of HMFS declined by 37% during 1HCY23 compared with 1HCY22 whereas market volumes declined by 33% during the same period, indicating that HMFS performed in line with the market. As HMFS, has initiated its online sales department, it is expected that this strategic move will have a positive impact on the company’s revenue in the foreseeable future. The Company reported a net loss of ~PKR 15mln in 1HCY23 when compared to the net loss of ~PKR 3mln during SPLY. The increase in reported loss can be attributable to a significant reduction in trading volumes, which has led to a decrease in brokerage income. Additionally, there has been a substantial increase of ~52% in administrative expenses. The Company has an adequate equity base of ~PKR 309mln at the end of Jun;23 (SPLY: ~PKR 330mln).
Going forward, the ratings are dependent on the management's ability to increase and retain its market share and diversification in revenue base to improve its competitive position in the brokerage industry. Simultaneously, it is imperative to uphold robust internal controls, retention of key management personnel, and diligently monitor risks.

About the Entity
Habib Metropolitan Financial Services Limited ("HMFSL" or the "Company") was incorporated in 2007 as a public limited company under the Companies Act, 2017 and commenced its operations in 2008. Habib Metropolitan Bank Limited (HMBL) is the parent company of HMFSL. HMBL currently operates with an expanding nationwide network of more than 521 branches in more than 207 cities across Pakistan at end-June'23. The Company has three directors on the board. The CEO, Mr. Ather Husain Medina is a qualified professional with extensive work experience of over 29 years in the financial sector and has worked with well-known companies.