The Pakistan Credit Rating Agency Limited
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Behrooz Fareed

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PACRA maintains the Rating of Escorts Investment Bank Limited | Rating Watch

Rating Type Entity
(20-Mar-23 )
(25-Mar-22 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Developing Developing
Rating Watch Yes Yes

Escorts Investment Bank Limited (“EIBL” or “the Company”) is a subsidiary of Bahria Town (Pvt) Limited, a privately owned real-estate development company that owns, develops, and manages properties across Pakistan. Contrary to earlier notices placed at PSX citing divestment, sponsors of the Company, now wants to run it. To realize their intents, Sponsors has appointed a seasoned banker, Mr. Basit Rehman Malik as CEO. The Company is funding its needs through equity at the moment. During FY22, EIBL adopted a cautious approach to avoid non-performing loans and reported revenues of PKR~68mln (FY21: PKR~97mln). The revenue primarily got the support from profit on financing which is almost 70% of total revenue, followed by the other income. Relevant to the business model of Escorts Bank, house finance is a prominent contributor into total portfolio of the bank. A major proportion of revenue comes from mortgage and micro finance portfolio. The Company incurred a loss of PKR~196.5mln in FY22. During FY22, the Company faced losses in shape of write-off of tax refunds (pertaining to pre takeover period) and re-assessment of deferred tax asset; owing to change in business plan, amounts to PKR 57.3mln and PKR60.6mln, respectively. This rendered Company short of equity as required to maintain under NBFC Regulations. The capital structure of the Company mainly comprises of equity. For the period under review during FY22, the debt-to-equity ratio of Escorts Bank had remained stagnant at ~0.1x (FY21: ~0.1x). The Company is non-complaint with Minimum Capital Requirement of PKR 750mln for maintaining deposit taking Investment Finance Services (IFS) license, as it carries equity of PKR 624.5mln. Hence the Rating Watch. The management has represented that they have taken up the matter of equity injection with the sponsors, who have shown willingness to put in more equity. This is crucial to future ratings.
New management has taken initiative towards cost cutting and introduction of new products. This would aid the Company improve its operational performance. The assigned rating further takes into account its association with Bahria Town (Pvt) Limited.
The ratings are dependent on the continuous financial strength and maintained liquidity position. Immaculate financial discipline and corporate governance is important. Any discrepancy in achieving its targets or regaining its lost momentum remains critical to the ratings. Sponsors’ support is of paramount importance.

About the Entity
Escorts Investment Bank Limited (EIBL), a Non-Banking Finance Company (NBFC), started its commercial operations in 1996. Major shareholding is held by Bahria Town (Pvt.) Limited (~85%), one of the largest real-estate company, while the rest is owned by the public sector companies and general public. The major ownership of Bahria Town is held by Chairman & CEO Mr. Malik Riaz Hussain.
Seven members board comprises of two independent, three non-executive and two executive directors. Mr. Tahir Nawazish is currently serving as Chairman of the board, an MBA from the University of Karachi. Mr. Basit Rahman Malik, new CEO of the bank, is a seasoned banker with over three decades of experience with multiple commercial local and international banks, former Country Head of Standard Chartered Bank, a graduate from Boston University with majors in banking and finance. He is ably supported by a team of 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.