PACRA Maintains Rating of JS Bank Limited | PPTFC | Dec-21
|Rating Type||Debt Instrument|
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-Dec21: 2.2%, End-Dec20: 2.4%). Funding base comprises of borrowings and deposits where term deposit is relatively higher compared to peers. The focus of the bank has been to optimize its cost structure, build profitability around branch network and customer base. The bank has assembled experienced and qualified management team to head various departments. The strategy of the bank revolves around creating a more balanced approach to customer acquisition and offering unique digital solutions to customers. The bank has made substantial capital investment in its digital proposition and launched a new brand ‘Zindigi’, which has been designed to tap the market of Gen Z and millennials by offering them simple and user-friendly digital financial solutions. Meager increase in advances is recorded owing to a cautious lending approach. A sizable increase is recorded in the investment book; owing to higher investment in government securities. A continued uptick in NPLs is a cause for concern, though 1QCY22 NPLs witnessed a minor decline. Going forward, management will focus on enhancing improving coverage on NPLs and enhancing recoveries. Markup income witnessed an increase attributable to the enhanced investments whilst attrition was recorded in non-mark up income. Despite high provisioning expenses, net profitability remained largely intact YoY. In order to strengthen the risk management framework, bank has segregated credit and risk functions into different sub-categories based on functions and geographies. The bank expects to boost profits by growing direct and ancillary business. Pakistan’s economy has gone through several varied phases in last two years due to the COVID-19 pandemic. Banking sector continued to flourish with high profitability. Going forward, the macro-economic environment is beset with myriad challenges due to heightened interest rate, tightening of demand, rupee depreciation and higher inflation. This has repercussions for the entire system including banking.
Ratings are dependent on JS Bank's ability to sustain its profitability to support the internal generation of capital. Meanwhile, upholding asset quality, maintaining its share of advances and deposits in banking sector, adding diversity to income stream, maintaining a cushion in CAR, and a strong governance framework is critical.
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 31 years, primarily in the banking sector.
JS Bank has issued Tier II capital TFC. The instrument has been issued for PKR 2,500mln on 28-Dec-21. The purpose of the issue was to contributed towards JSBL’s Tier 2 Capital for complying with the Capital Adequacy Ratio (“CAR”) requirement prescribed by SBP. The tenor of the instrument is up to 7 years and carries a profit rate of 6MK + 200bps p.a. Major Principal Repayment (99.76%) would be paid in two equal semiannual instalments of (49.88%) each, in the seventh year. The Bank has a right to exercise call option on/after 05 years from the issuance date.