The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Upgrades Entity Ratings of The Bank of Khyber

Rating Type Entity
(04-Oct-22 )
(25-Jun-22 )
Action Upgrade Maintain
Long Term A+ A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect stability achieved in the leadership role through the appointment of an experienced CEO last year together with the improved business profile, on an overall basis, as reflected by the largely intact customer deposit share of the Bank. The ratings also reflect the strength of the Bank’s ownership structure and the continued support of its strong sponsors. Moreover, the government of KP is committed to maintaining its controlling stake in the Bank and is aware of Bank’s growth strategy, and is supportive of it. The incumbent leadership assumed the stewardship of the Bank and has devised a clear and prudent strategy for the growth and performance improvement of the Bank. The management team is fully cognizant of the prevailing micro and macro challenges and aligned on the strategy to bring improvement in all the key indicators of the Bank. The deposit mix remained tilted towards saving deposits, while the CASA ratio witnessed improvement (End-Jun’22: 70.3%; End Dec’21: 65.2%). Net markup income and non-markup income registered an increase during the period. Moreover, an enhancement in the branch network recently has been a major dimension for the Bank. Sustainability in net-mark-up income continued enhancement in non-funded income, and strengthened treasury operations are important for future years. The dividend payouts in the past had led to limited growth in the equity base of the Bank, however, the Bank prudently opted to only issue bonus shares for FY21 to shore up the capital. The Bank while having a cautious approach, intends to increase its exposure to Private Sector Advances. It remains vital for Bank to properly manage the credit risk, if any, arising from lending through government schemes. The Bank has further embarked upon improving efficiency and effectiveness in the operating system through the implementation of widely used Core Banking Software T-24. Asset quality slightly improved as reflected by NPLs to Gross Advances ratio (End-Jun’22: 7.9%, End-Dec’21: 8.01%). The management has developed and started implementing a well-thought-out strategy for the reduction of NPLs and improvement of portfolio quality. The investment book of the Bank is predominantly comprised of government securities. The Bank’s total CAR stands at 14.3% as of end-Jun’22. Pakistan’s economy has gone through several varied phases in the last two years due to the COVID19 pandemic. The banking sector continued to flourish with high profitability. Going forward, the macroeconomic environment is beset with myriad challenges due to heightened interest rates, tightening of demand, rupee depreciation, and higher inflation. This has repercussions for several segments of the economy.
The upgrade in rating reflects the bank's ability to hold its risk profile while maintaining its relative market position. Moreover, the bank enjoys the continued support of its strong sponsors.

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. At present, 110 of its branches function as dedicated Islamic banking branches, whereas 105 cater to conventional banking. The Government of Khyber Pakhtunkhwa (KP) has a majority stake in BoK (70.2%), whereas, Ismail Industries' stake is 24.4% in BoK. The Bank enjoys relationship support with the KPK government. Mr. Shahab Ali Shah is the Chairman of the board since May 21. Mr. Muhammad Ali Gulfaraz took the charge as Managing Director on August 12, 2021. Mr. Ali Gulfaraz brings with him an extensive experience of 25 years in global corporate and investment banking. Other senior management team consists 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.