STANDARD CHARTERED BANK (PAKISTAN) LIMITED (SCBPL)

Transcription

1 The Pakistan Credit Rating Agency Limited STANDARD CHARTERED BANK (PAKISTAN) LIMITED (SCBPL) NEW [JUN-15] PREVIOUS [JUN-14] REPORT CONTENTS 1. RATING ANALYSES Privately Placed, unsecured, subordinated Term Finance Certificate- IV AAA AAA 2. FINANCIAL INFORMATION Outlook Stable Stable 3. RATING SCALE 4. REGULATORY AND SUPPLEMENTARY DISCLOSURE JUNE 2015

2 BANKING The Pakistan Credit Rating Agency Limited RATING ANALYSES (JUNE 2015) STANDARD CHARTERED BANK PAKISTAN LIMITED (SCBPL) RATING RATIONALE The ratings reflect SCBPL's association with a financially sound and reputed international bank - Standard Chartered PLC. This is supplemented by SCBPL's strategic and operational integration into the parent as the bank continues to benefit from the technical resources and cumulative expertise developed at the group level. The ratings incorporate the bank's edge in niche market (MNCs and established domestic corporates & consumer through an elaborate product suite), wherein, its international franchise is advantageous. At the same time, the ratings factor in sound management quality, healthy spreads, and ample liquidity of the bank. SCBPL's pre-dominantly low cost deposit base, while distinguishing it in peer universe, facilitates core operating activities. KEY RATING DRIVERS The ratings remain dependent on the bank's ability to maintain its presence in profitable segments, while remaining abreast of changing domestic operating environment. Meanwhile, maintaining spreads whilst not compromising on the asset quality is important for the bank. Assets: SCBPL witnessed a slight decline in advances portfolio on YoY basis. This is mainly due to the bank s credit policy of lending to high and sound quality clientele rather than massive retail customer base. The advances portfolio constitutes ~ 31% of bank s total assets (CY13: 33%). The sectoral composition is mainly concentrated in i) Textile ~ 22% (CY13: 21%), followed by ii) Energy ~ 12% (CY13: 15%) and Chemicals & Pharmaceuticals ~ 9% (CY13: 6%). Funding: SCBPL s funding mix is largely tilted towards deposits side which has witnessed slight growth on YoY basis ~3% as compared to ~11% last year. The increase was lower than the industry growth. The deposit base represents ~83.5% of the bank s total liabilities at end-mar15 (Dec14: 87%, Dec13: 86%). Due to an established brand, SCBPL was able to mobilize a larger number of low cost deposits and currently has one of the highest CASA ratio (1QCY15: 92.8%, CY14: 92.4%, CY13: 91.1%) in the industry. The bank has a diversified deposit base as reflected by top 20 depositor concentration of 9%. Credit Risk: SCBPL s infection ratio slightly improved (CY14: 15.4%, CY13: 15.7%), however in IQCY15 the ratio deteriorated ~16.7% where the bank prudently downgraded certain clients on subjective basis. The bank s loss coverage ratio remained same on YoY basis (Dec14: 93%, Dec13: 90%). Market Risk: During CY14, investment book of SCBPL, constituting ~46% of the total assets, expanded by 29%. Government securities continue to dominate the investment portfolio representing ~99% share (CY13: 99%) - PIB s (~60%) and T- bills (~30%). This reflected the risk appetite of the bank in line with the interest rate environment prevailing within the country. Performance: During CY14, the bank has witnessed a growth in its interest markup earned of ~12% (CY14: PKR 34bln, CY13: PKR 30bln), on account of asset book building in high yielding PIB s. The bank s low cost of funds helped in improving the spreads positively supporting the net interest margin on a YoY basis. The non-interest income with a sizeable contribution from fee, commission and brokerage and income from dealing in foreign currencies supported ~17% (CY14: PKR 28.2bln, CY13: PKR 24.2bln) growth in the overall revenue stream. The bank s operating expenses witnessed an upsurge by ~40%, mainly on account of a restriction by SBP on remittance of outsourcing expense (PKR 3bln). however excluding one-off reversal last year (on account of a restriction by SBP on remittance of outsourcing expense of PKR 3bln) the overall cost increased by 4%. In addition to that the provisioning expense incurred during the year further dented the bank s profitability which remained at PKR 9.7bln at Dec14 (Dec13: PKR 10.5bln). During 1QFY15, the bank continued to benefit from the sizeable portfolio of high yielding PIBs resulting in an improved profitability (1QCY15: PKR 2.77bln, 1QCY14: PKR 2.22bln). Capital: SCBPL s equity remains high in the mid size banking universe, PKR 51.4bln at 1QCY15 (Dec14: PKR 54.4bln). SCBPL s CAR during the period improved to 19.07% (CY13:17.01%). The bank has one privately placed, unsecured and subordinated TFC-IV of PKR 2,500mln, issued during Jun12, having a tenor of 10 years, profit payable at 6Mkibor+0.75bps and embedded call option, exercisable after five years. SCBPL s equity remains high in the domestic banking industry, PKR 51.4bln at 1QCY15 (Dec14: PKR 54.4bln). Business Strategy: : In the medium term, the management intends to remain focused in providing banking solutions to its specific niche of high net worth individuals and good corporate clientele. The focus is on maintaining, indeed augmenting, SCBPL s presence in Tier-1 cities. The bank will continue driving its digital banking initiative, providing state of the art digital solutions to both, its Retail and Corporate customers.. Profile: SCBPL, incorporated in Pakistan in Jul06, is majority owned (99%) by Standard Chartered PLC and operates with a network of 108 branches at end-mar15. Standard Chartered PLC is rated (S&P: A+, negative outlook, Moody's: A2, and Fitch: AA-) at end-dec14. Governance and Management: SCBPL's seven-member BoD comprises four members of the Standard Chartered Group, including SCBPL's CEO (Mr. Shazad Gul Dada), while the remaining members are independent directors. Mr. Christos Papadopoulos, Regional CEO of Middle East, North Africa and Pakistan region at Standard Chartered Group, is the Board s Chairman. Mr. Dada, recently appointed as CEO, possesses vast experience of 25 years in international financial institutions. STANDARD CHARTERED BANK PAKISTAN LIMITED June

3 BANKING Financial Information The Pakistan Credit Rating Agency Limited Standard Chartered Bank (Pakistan) Limited PKR mln BALANCE SHEET 31-Mar Dec Dec Dec-12 Earning Assets Advances (Net of NPLs) 127, , , ,521 Debt Instruments Total Finances 127, , , ,806 Investments 219, , , ,692 Others 25,179 22,644 34,754 30, , , , ,847 Non Earning Assets Non-Earning Cash 13,985 10,033 21,188 23,347 Deferred Tax ,524 Net Non-Performing Finances 3,793 1,646 2,577 2,663 Fixed Assets & Others 56,173 58,623 61,314 66,491 73,951 70,302 85,079 94,025 TOTAL ASSETS 446, , , ,872 Interest Bearning Liabilities Deposits 320, , , ,670 Borrowings 29,645 19,745 19,066 26, , , , ,819 Non Interest Bearing Liabilities 36,902 24,604 28,086 41,760 TOTAL LIABILITIES 387, , , ,579 EQUITY (including revaluation surplus) 59,102 60,715 55,729 54,293 TOTAL LIABILITIES & EQUITY 446, , , ,872 INCOME STATEMENT 31-Mar Dec Dec Dec-12 Interest / Mark up Earned 8,421 34,106 30,377 31,134 Interest / Mark up Expensed (2,966) (13,243) (12,048) (11,654) Net Interest / Markup revenue 5,455 20,863 18,329 19,480 Other Income 2,398 7,393 5,885 7,316 Total Revenue 7,853 28,256 24,214 26,796 Non-Interest / Non-Mark up Expensed (3,065) (12,560) (9,000) (14,091) Pre-provision operating profit 4,788 15,696 15,213 12,705 Provisions (500) (466) 931 (3,597) Pre-tax profit 4,288 15,231 16,144 9,108 Taxes (1,511) (5,506) (5,616) (3,198) Net Income 2,777 9,725 10,528 5,910 Ratio Analysis 31-Mar Dec Dec Dec-12 Performance ROE 21% 18% 21% 12% Cost-to-Total Net Revenue 39% 45% 37% 53% Provision Expense / Pre Provision Profit 10% 3% 6% 28% Capital Adequacy Equity/Total Assets 12% 13% 13% 13% Capital Adequacy Ratio as per SBP 19% 19% 17% 14% Funding & Liquidity Liquid Assets / Deposits and Borrowings 73% 65% 57% 56% Advances / Deposits 41% 42% 46% 51% CASA deposits / Total Customer Deposits 93% 92% 91% 88% Intermediation Efficiency Asset Yield 9% 10% 10% 11% Cost of Funds 4% 4% 4% 4% Spread 6% 6% 6% 7% Outreach Branches Standard Chartered Bank (Pakistan) Limited June

4 Regulatory and Supplementary Disclosure Repayment Schedule PPTFC IV PPTFC Iv Amount (PKR mln) 2,500 Period (years) 10 Repayment Semi annually Pricing 6MKibor+0.75bps Standard Chartered Bank (Pakistan) Limited PPTFC IV Redemption Schedule Annexure A Due Date Principle* Opening Principal Principal Repayment Due Date Markup/ Markup/Profit Rate Markup/Profit Payment Installment Payable Principal Outstanding PKR in mln Profit PKR in mln 31-Dec-12 2,500 2, Jun-13 2, Jun % , Dec-13 2, Dec % , Jun-14 2, Jun % , Dec-14 2, Dec % , Jun-15 2, Jun % , Dec-15 2, Dec % , Jun-16 2, Jun % , Dec-16 2, Dec % , Jun-17 2, Jun % , Dec-17 2, Dec % , Jun-18 2, Jun % , Dec-18 2, Dec % , Jun-19 2, Jun % , Dec-19 2, Dec % , Jun-20 2, Jun % , Dec-20 2, Dec % , Jun-21 2, Jun % , Dec-21 2,500 1, Dec % 95 1,345 1, Jun-22 1,250 1, Jun % 47 1, ,500 1,696 1,696

5 The Pakistan Credit Rating Agency Limited STANDARD RATING SCALE & DEFINITIONS Credit rating reflects forward-looking opinion on credit worthiness of underlying entity or instrument; more specifically it covers relative ability to honor financial obligations. The primary factor being captured on the rating scale is relative likelihood of default. LONG TERM RATINGS AAA Highest credit quality. Lowest expectation of credit risk. Indicate exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA+ Very high credit quality. Very low expectation of credit risk. Indicate very strong capacity for timely payment of financial commitments. AA This capacity is not significantly vulnerable to foreseeable events. AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- High credit quality. Low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be vulnerable to changes in circumstances or in economic conditions. Good credit quality. Currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. Speculative. Possibility of credit risk developing. There is a possibility of credit risk developing, particularly as a result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Highly speculative. Significant credit risk. A limited margin of safety remains against credit risk. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. SHORT TERM RATINGS A1+: The highest capacity for timely repayment. A1:. A strong capacity for timely repayment. A2: A satisfactory capacity for timely repayment. This may be susceptible to adverse changes in business, economic, or financial conditions. A3: An adequate capacity for timely repayment. Such capacity is susceptible to adverse changes in business, economic, or financial conditions. B: The capacity for timely repayment is more susceptible to adverse changes in business, economic, or financial conditions. CCC CC C D High default risk. Substantial credit risk CCC Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. CC Rating indicates that default of some kind appears probable. C Ratings signal imminent default. Obligations are currently in default. C: An inadequate capacity to ensure timely repayment. Rating Watch Alerts to the possibility of a rating change subsequent to, or in anticipation of, a) some material identifiable event and/or b) deviation from expected trend. But it does not mean that a rating change is inevitable. Rating Watch may carry designation Positive (rating may be raised, negative (lowered), or developing (direction is unclear). A watch should be resolved with in foreseeable future, but may continue if underlying circumstances are not settled. Outlook (Stable, Positive, Negative, Developing) Indicates the potential and direction of a rating over the intermediate term in response to trends in economic and/or fundamental business/financial conditions. It is not necessarily a precursor to a rating change. Stable outlook means a rating is not likely to change. Positive means it may be raised. Negative means it may be lowered. Where the trends have conflicting elements, the outlook may be described as Developing. Suspension It is not possible to update an opinion due to lack of requisite information. Opinion should be resumed in foreseeable future. However, if this does not happen within six (6) months, the rating should be considered withdrawn. Withdrawn A rating is withdrawn on a) termination of rating mandate, b) cessation of underlying entity, c) the debt instrument is redeemed, d) the rating remains suspended for six months, or e) the entity/issuer defaults. Disclaimer: PACRA's ratings are an assessment of the credit standing of entities/issues in Pakistan. They do not take into account the potential transfer / convertibility risk that may exist for foreign currency creditors. PACRA's 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.

6 Regulatory and Supplementary Disclosure Name of Issuer Sector Type of Relationship Purpose of the Rating Rating History Standard Charterd Bank (Pakistan) Limited Banking Solicited Independent Risk Assessment Regulatory Requirement Dissemination Date Long Term Outlook Action 19-Jun-15 AAA Stable Maintain 19-Jun-14 AAA Stable Maintain 27-Jun-13 AAA Stable Maintain 2-Jul-12 AAA Stable Initial 18-Apr-12 AAA Stable Preliminary Instrument Details Instrument Size of Issue Tenor (yrs) & (PKR mln) Maturity Intallment Frequency Rate Major Principal Redemption Secuirty Call Option Outstanding Principal end- Mar15 (PKR mln) Trustee PPTFC-IV: Unsecured, subordinated 2,500 10yrs - Jun Semi-annual 6Mkibor+0.75bps equal semi annual payments at the tenth year Unsecured and subordinated to all other obligations of the bank Call option exerciseable after 5 years of issue date 2,500 Pak Brunei Investment Co. Limited Related Criteria and Research Rating Methodology Sector Research Bank Rating Methodology Banking Sector Viewpoint Mar 15 Rating Analysts Shoaib Afzal Rai Umar Zafar shoaib.afzal@pacra.com rai.umar@pacra.com ( ) ( ) Rating Team Statement Disclaimer Rating Procedure Rating is an opinion on relative credit worthiness of an entity or debt instrument. It does not constitute recommendation to buy, hold or sell any security. The rating team for this assignment does not have any beneficial interest, direct or indirect in the rated entity/instrument. Rating Shopping PACRA maintains principle of integrity in seeking rating business. PACRA has used due care in preparation of this document. Our information has been obtained directly from the underlying entity and public sources we consider to be reliable but its accuracyor completeness is not guaranteed. PACRA shall owe no liability whatsoever to any loss or damage caused by or resulting from any error in such information. 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