PACRA Downgrades the Ratings of Escorts Investment Bank Limited

Escorts Investment Bank Limited ("Escorts Bank" or "the Bank") is a subsidiary of Bahria Town (Pvt) Limited, a privately owned real estate development company that owns, develops, and manages properties across Pakistan. The Bank has a limited portfolio that comprises house finance, microfinance, and gold finance. Initially, it was planned to have a bigger size of house financing book, focused primarily on customers of Bahria Town. Since the portfolio is very minute, the revenue stream is very limited. Meeting no big success in mortgages and house financing, the Bank turned its focus towards microfinance, a segment that has its problems and challenges. The Bank's revenue, however limited it is, comes from mortgage and microfinance portfolios. On the net level, the Bank continues to incur losses due to higher non-markup expenses and declining investment income. Over time, the quantum of these losses has increased. Earlier, the write-off of tax refunds (on the takeover period) and reassessment of deferred tax assets, owing to a change in the business plan, rendered the Bank short of equity as required to maintain under NBFC Regulations. Escorts Bank's capital structure mainly comprises equity, with a stagnant debt-to-equity ratio, and remains non-compliant with the Minimum Capital Requirement of PKR 750mln. The equity base has been diluted due to no support from in-house profit generation. Injection of capital and build-up of a new revenue stream to bring much-desired self-sustainability is crucial. The Negative Outlook highlights the looming risks. The new management is trying to fill in the gaps. Going forward, the sponsors plan to bring in a new partner, who is expected to inject fresh equity into the Bank. With this new injection, the Bank's capital is expected to reach a size that would enable them to obtain a full-fledged IFS license which is the target and being envisaged by the new management. A successful and timely materialization of these initiatives is important. Overall, the considerably weak business profile of the Bank leads to a ratings adjustment.
The ratings are dependent on the Bank's relative standing and an improvement in the asset quality of the existing portfolio. Moreover, achieving bottom-line profitability remains important. Any further weakening in the financial profile or lack/delay in support from the Sponsor may impact the ratings.

About the Entity
Escorts Investment Bank Limited ("Escorts Bank" or "the Bank"), a Non-Banking Finance Company (NBFC), was incorporated in Oct-96 as a public listed entity. The Bank's prime activity is to provide facilities of microfinance, corporate finance, housing finance, and certificates of deposits to corporate and individual clients accordingly.
The major stake of the Bank lies with Bahria Town (Pvt.) Ltd. (~88%), one of the leading real estate development companies in Pakistan. The Bank's Board is chaired by Mr. Tahir Nawzish. While Mr. Basit Rahman Malik serves as the CEO. He is assisted by experienced professionals.