PACRA Upgrades the Rating of JS Bank Limited | PPTFC | Dec-21

JS Bank acquired majority stake (75.12%) in BankIslami Pakistan Limited in Aug 2023, marking a significant milestone and reinforcing its position as one of Pakistan's fastest growing financial institutions. This acquisition has set JS Bank apart from the rest of its peers. The assigned ratings reflect JS Bank's consolidated position after the aforementioned acquisition. The positive fundamentals of the Islamic banking industry in general also lend support to the ratings. In addition, the ratings highlight JS Bank's growing stature, on a standalone basis, as a medium-sized bank. The management has a clear business strategy aimed at bolstering profitability through efficiency. JS Bank has increasingly gained a tech-savvy image, while continuously augmenting its futuristic layout. It has heavily invested in its digital services; "Zindigi," has become a hallmark of the bank’s digital presence. It is designed to provide Gen Z and millennials with simple, user- friendly digital financial solutions. Zindigi is fast establishing itself as one of the country's growing market place apps. The contribution of current account is less than desired and the management is cognizant of this and hence intends to take steps to enhance the contribution. The bank continuously shed high-cost deposit, to ensure positive return on each account. The net advances depicted a decline owing to consolidation in the bank's lending portfolio, amidst current economic landscape. Concurrently, there was a slight uptick in infection ratio, due to the aforementioned consolidation. The investment portfolio majorly comprises government securities, titled towards floater instruments. CAR is above the regulatory requirement and depicting an upward trajectory, as the management has shown. There is an express intention shown by the management to build core capital in future.
Ratings are dependent on JS Bank's ability to sustain positioning and also profitability trend to ensure internal generation of capital. Meanwhile, upholding asset quality and managing cost structure is important.

About the Entity
JS Bank Limited (JSBL), incorporated in March 2006, commenced its banking operations on December 30, 2006. JSBL is a subsidiary (~71.21%) 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 30 years, primarily in the banking sector.

About the Instrument
The bank issued Tier II capital TFC amounting to PKR 2,500mln on 28-Dec-21. The tenor of the instrument is up to 7 years and carries a profit rate of 6MK +2%. The TFC would be subordinated to the payment of principal and profit, to other indebtedness of the bank, including deposits, however senior to the claims of investors in instruments eligible for inclusion in Tier 1 Capital. Neither profit nor principal will be payable in respect of TFC if such payment will result in a shortfall in the bank’s MCR or CAR. The bank may call the TFCs, with prior approval of SBP, after five years from the date of issue. The TFCs shall, if directed by the SBP, be fully and permanently converted into ordinary shares and/or have them immediately written off (partially or in full) upon the PONV Trigger Event. Major Principal Repayment (99.76%) would be paid in two equal semiannual installments of (49.88%) each, in the last year. The latest payment (Principal+Interest) of PKR 294mln has been made at the end of Dec'23.