PACRA Maintains Entity Ratings of Pakistan Kuwait Investment Company (Pvt.) Limited.

Pakistan Kuwait Investment Company (Pvt.) Limited ("the Company" or "PKIC") is the leading Development Financial Institution (DFI) in the country. The primary purpose of Development Financial Institutions (DFIs) is social uplift by executing commercially viable projects. PKIC has achieved a pivotal milestone by launching a new business avenue in Islamic Finance to provide a diverse array of Sharia-compliant financial products. PKIC has received in-principle approval for establishing an Islamic digital bank; Raqami Islamic Digital Bank Limited (RIDBL). PKIC has a controlling equity stake of ~72.9%. It is expected to transform the banking landscape of the country. The rating takes comfort from the Company's strategic investment in the leading Islamic Bank of Pakistan; Meezan Bank Limited. The dividend income of -PKR8.3bln from associates has significantly bolstered the company's profitability to PKR l0bln in CY23. The company has a robust liquidity framework; given the prevailing interest rate environment, PKIC leveraged its strength to make money through treasury operations. The year 2023 was phenomenal in this respect. However, the downward trajectory and especially the evaporated margins have lately made this avenue slightly unattractive. There is a strategic shift towards investments in floater rate PIBs and maturity of T-bills to reduce interest rate risk and maintain net interest margins. During 1QCY24, a compression in NIMs is observed mainly on stagnant policy rates despite the downward trend in the secondary market yields. In CY23, the corporate finance portfolio of the Company stood at PKR 62.8bln and was disbursed to well-established and stable entities. This can also be witnessed by the minimal number of watch-list accounts and an infection ratio of 1.5% in CY23, with NPLs at PKR 809.2mln. The company is equipped with credit risk model that segregates sector-wise and borrower-wise risk tagging to improve asset quality. The asset base of the Company achieved new heights and cross the trillion mark to stand at PKR 1.08 trillion in CY23, compared to PKR 765bln at the end of last year. The OMO facility is the Company’s primary source of funding, while the contribution of COIs remains minimal within the funding base. The company maintained a substantial equity base of PKR 34.3bln and CAR of 39.1% beefing up the risk absorption capacity. The board of PKIC serves in an advisory capacity with the delegation of authority vested in their highly qualified and professional management team. The Central Bank maintained a tight monetary policy stance to combat inflation and curb aggregate demand. The market portrays an inverted yield trend and recent -1.5% cut is a reflection of it.
The ratings are dependent on the management's ability to sustain its financial profile while managing the associated risks. The impact of new ventures and strategic investment on the business sustainability and profitability matrix of the Company remains critical. Management's efforts to diversify its operations, and find a new niche for growth, while sustaining its profitability supplement the assigned rating.

About the Entity
PKIC was established in March 1979 as a joint venture between the Governments of Pakistan and Kuwait; equally owned by the SBP and the KIA. The company is controlled by a six-member board; including the CEO and five non-executive directors; with equal representation from both governments. Mr. Saad Ur Rahman Khan, PKIC’s MD, has extensive experience in corporate, commercial, investment banking, risk management and is supported by a skilled management team.