Escorts Investment Bank Limited

CREDIT RATING REPORT | Apr-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
14-Apr-25 BBB A2 Negative Downgrade -
19-Sep-24 BBB+ A2 Negative Maintain -
19-Sep-23 BBB+ A2 Negative Downgrade -
20-Mar-23 A- A2 Developing Maintain YES
25-Mar-22 A- A2 Developing Maintain YES
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.

Rating Rationale

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.

Key Rating Drivers

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.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Escorts Investment Bank Limited

rating analysis

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Profile
Structure

Escorts Investment Bank Limited ("Escorts Bank" or "the Bank") was incorporated as a public listed concern in Oct-96.


Background

The Bank is a subsidiary of Bahria Town (Pvt.) Ltd. (Bahria Town), a leading private real estate company in Pakistan. Bahria Town owns, develops, and manages various properties across the Country. In Jan-18, by injecting equity of PKR 1.2bln, Bahria Town acquired major shareholding and management controls of the Bank.


Operations

Escorts Bank started its commercial operations as a Non-Banking Financial Company (NBFC) in Oct-96. As regulated by SECP, the Bank is licensed to carry out financial services, like microfinance, corporate finance, housing finance, and certificates of deposits to corporations and individuals. The Bank operates countrywide via 11 branches, including the Head Office in Lahore.


Ownership
Ownership Structure

The Bank is majorly owned by Bahria Town (~87.96%). Joint Stock Companies and Financial Institutions hold (~1.37%) and (~0.58%) stakes, respectively. The remaining stake is held by the general public (~10.01%), Insurance companies, and Modarabas hold (~0.08%) stake. 


Stability

Ownership of the Bank seems stable as major stakes vest with Bahria Town.


Business Acumen

Key sponsor of the Bank, Mr. Malik Riaz Hussain is the one of the leading real estate developer of Pakistan. This vouches for his excellent business acumen.


Financial Strength

Sponsors hold strong financial footing to support the Bank, if needs be.


Governance
Board Structure

The overall control of the Bank currently vests in a four-member Board, out of which two are Executive Directors, while two are Non-Executive Directors. However, the inclusion of an Independent Director can improve the governance of the Bank.


Members’ Profile

The Board's Chairman, Mr. Tahir Nawazish, has more than 48 years of experience. Mr. Tahir is associated with the Board since Jan-20. Ms. Madiha Arooj, a Non-Executive Director, holds more than 12 years of management and liaison experience in the real estate industry. She is associated with the Board since Oct-22. All other Board members have diversified professional experience.


Board Effectiveness

During the year, the Board met four times. The Board has three committees: Audit Committee, Human Resource & Remuneration Committee, and Risk Management Committee. All the committees comprise three members. The audit committee is chaired by the CEO. The Board's attendance is optimal, and the minutes are adequately maintained.


Financial Transparency

External Auditors of the Bank, Ilyas Saeed & Co, Chartered Accountants, has issued an unqualified audit report for FY24; however, has laid Emphasis on the Matter to draw attention towards the Minimum Equity Requirement of PKR 750mln for Investment Finance Services (IFS) license.


Management
Organizational Structure

The Bank operates through six departments: Microfinance, IT, Human Resources, Risk, Compliance, and Administration. Each department's Head reports administratively to the CEO, who then reports to the BoD.


Management Team

The Bank has an experienced management team. Mr. Basit Rahman Malik, the Chief Executive Officer (CEO), joined in Oct-22 and has an experience of more than three decades in the banking industry. Mrs. Najma Fazal is the Chief Financial Officer (CFO) with over 8 years of experience and is associated with Bank for 1.5 years. 


Effectiveness

The Bank requires effectiveness management practices through establishing management level committees to monitor the business operations efficiently.


MIS

Escorts Bank uses MIS software "Almanac". The software is specialized for housing finance and microfinance and is currently being used by several entities in the NBFCs sector.


Risk Management framework

The management is responsible for establishing the risk management framework to ensure an effective and sound internal control and compliance system. The risk department of the Bank is in line with efforts to standardize processes and improve controls.


Business Risk
Industry Dynamics

The business environment in the country has remained challenging. Measures taken by the Government toward economic stabilization have impacted overall business sentiments. Due to economic susceptibility in recent periods, the scenario has turned into a disturbed outlook. The cost of business has risen, and NBFCs continue to face stiff competition from banks.


Relative Position

Escorts Bank is the first private sector concern, concentrating solely on providing housing finance to the public, especially to potential Bahria Town residents.


Revenues

Escorts Bank generates revenue from house finance, gold finance, and microfinance portfolios. During FY24, income from total advances of the Bank increased by ~1.4% (FY24: ~PKR 71mln, FY23: ~PKR 70mln), backed by an increase in interest rates on these loans. Moreover, profit on investment (FY24: ~PKR 39mln, FY23: ~PKR 29mln) adds to overall markup income. During 6MFY25, the income from advances was reported at ~PKR 45mln (6MFY24: ~PKR 34mln), whereas profit on investment contributed ~PKR 9mln (6MFY24: ~PKR 22mln) to the markup income. The overall business performance of the Bank remains stressed.


Performance

The Bank reported a net markup income of ~PKR 104mln during FY24 (FY23: PKR 95mln), resulting from an increase in gross markup income and stable markup expenses of ~PKR 7mln (FY23: ~PKR 5mln). However, non-markup expenses amounted to ~PKR 156mln (FY24: ~PKR 153mln), leading to a net loss of ~PKR 23mln (FY23: ~PKR 49 mln-loss). During 6MFY25, the Bank reported net markup income of ~PKR 50mln (6MFY24: ~PKR 53mln) resulting from a decline in gross markup income however, stable markup expense of ~PKR 3mln (6MFY24: ~PKR 3mln). Non-markup income declined, reported at ~PKR 8mln (6MFY24:~PKR 20mln). The decrease in markup and non-markup income increased the loss of the Bank reported at ~PKR 20mln (6MFY24: ~PKR 5mln).


Sustainability

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. However, successful and timely materialization of the same is critical. The Bank holds a weak business profile due to persistent losses and is non-compliance with the minimum capital requirement to obtain an IFS license. This results in a ratings adjustment.


Financial Risk
Credit Risk

Escorts Bank's financing book is mainly comprised of loans and advances. The Bank controlled its credit risk as its financial assets are diversified. Non-Earnings ratio deteriorated as of FY24 and stood at ~66% (FY23: ~62%) due to increased non-earning assets, reported at ~PKR 375mln (FY23: ~PKR 368mln). As of 6MFY25, the ratio deteriorated to ~68% (6MFY24: ~64%) due to decreased equity.


Market Risk

The Bank faces market risks, including interest rate and other price risks, but is not exposed to currency risk due to the absence of foreign currency transactions in its activities.


Liquidity and Funding

As of FY24, the total funding of the Bank stood at ~PKR 45mln (FY23: ~PKR 58mln), whereas liquid assets stood at ~PKR 158mln (FY23: ~PKR 192mln). The decrease in total funding lead to an improved liquidity position of the Bank reported at ~354% (FY23: ~330%), showing the availability of adequate liquid assets to meet obligations. As of 6MFY25, the Bank's liquidity position stood at ~181% (6MFY24: ~412%) due to a decrease in liquid assets reported at ~PKR 74mln (6MFY24: ~PKR 197mln) whereas total funding was reported at ~PKR 41mln (6MFY24: ~PKR 48mln). 


Capitalization

The capital structure of the Bank is mainly comprises equity. Due to reduced borrowings, the debt-to-equity ratio of Escorts Bank remained stagnant (FY24: ~0.1x, FY23: ~0.1x). The Bank is non-compliant with the Minimum Capital Requirement of PKR 750mln required for IFS license. Total equity of the Bank deteriorated as of FY24 and stood at ~PKR 571mln (FY23: ~PKR 595mln) due to increase in unappropriated losses. As of 6MFY25, the equity was reported at ~PKR 550mln (6MFY24: ~PKR 593mln), whereas debt to equity ratio remained stable at ~0.1x (6MFY24: ~0.1x).


 
 

Apr-25

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Escorts Investment Bank Limited

financial summary

(PKR mln)

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Dec-24
6M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Total Finance-net 377 299 306 263
2. Investments 12 9 120 57
3. Other Earning Assets 38 123 44 79
4. Non-Earning Assets 376 375 368 441
5. Non-Performing Finances-net (94) (80) (72) 0
Total Assets 708 726 766 840
6. Funding 41 45 58 68
7. Other Liabilities 116 110 114 128
Total Liabilities 158 155 172 197
Equity 550 571 595 643
B. INCOME STATEMENT
1. Mark Up Earned 53 111 100 68
2. Mark Up Expensed (3) (7) (5) (5)
3. Non Mark Up Income 8 26 11 29
Total Income 58 130 106 92
4. Non-Mark Up Expenses (78) (156) (153) (233)
5. Provisions/Write offs/Reversals 0 0 0 6
Pre-Tax Profit (20) (26) (47) (135)
6. Taxes (1) 3 (2) (62)
Profit After Tax (21) (23) (49) (196)
C. RATIO ANALYSIS
1. PERFORMANCE
a. Non-Mark Up Expenses / Total Income 135.1% 119.7% 144.4% 252.4%
b. ROE -7.5% -3.9% -7.9% -26.5%
2. CREDIT RISK
a. Gross Finances (Total Finance-net + Non-Performing Advances + Non-Performing Debt Instruments) / Funding 915.7% 670.2% 526.9% 385.5%
b. Accumulated Provisions / Non-Performing Advances N/A N/A N/A N/A
3. FUNDING & LIQUIDITY
a. Liquid Assets / Funding 180.9% 354.4% 330.2% 290.7%
b. Borrowings from Banks and Other Financial Instituties / Funding 0.0% 0.0% 0.0% 0.0%
4. MARKET RISK
a. Investments / Equity 2.1% 1.5% 20.2% 8.8%
b. (Equity Investments + Related Party) / Equity 2.1% 1.5% 1.0% 0.0%
5. CAPITALIZATION
a. Equity / Total Assets (D+E+F) 77.7% 78.6% 77.6% 76.6%
b. Capital formation rate (Profit After Tax + Cash Dividend ) / Equity -7.4% -3.9% -7.6% -23.4%

Apr-25

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Escorts Investment Bank Limited

rating scale

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Apr-25

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Escorts Investment Bank Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
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