Burj Bank Limited RATING REPORT. RATING DETAILS Latest Rating Previous Rating COMPANY INFORMATION

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1 RATING REPORT REPORT DATE: July 2, 2015 RATING ANALYSTS: Maimoon Rasheed Hasan Farooq Baddi RATING DETAILS Latest Rating Previous Rating Rating Category Longterm Shortterm Longterm Shortterm Entity A- A-2 A A-1 Outlook Negative Negative Date June 29, 15 June 30, 14 COMPANY INFORMATION Incorporated in 2005 Unlisted Public Limited Company Key Shareholders (with stake 5% or more): Bank Al Khair (BSC) 37.9% Islamic Corporation for the Development of the Private Sector (ICD) 33.9% External auditors: A.F.Ferguson and Co. Chairman of the Board: Mr. Khaled Al Aboodi Chief Executive Officer: Mr. Ahmed Khizer Khan APPLICABLE METHODOLOGY JCR-VIS Commercial Banks Rating 1

2 OVERVIEW OF THE INSTITUTION was incorporated in Pakistan as an unlisted public limited company in 2005 under the Companies Ordinance, 1984 to carryout business as an Islamic Commercial Bank in accordance with the principles of Shari ah. The bank commenced operations in RATING RATIONALE As at March 31, 2015, (BBL) stands short of the minimum capital requirement (MCR) stipulated by the State Bank of Pakistan (SBP) by Rs. 5.2b. Islamic Corporation for the Development of the Private Sector ICD (with a shareholding of 33.9%) may consider injecting additional equity in the bank, to the extent of its current shareholding. However, in the absence of willingness from other existing shareholders (including Bank Al- Khair B.S.C (BAK) with a stake of 37.9%) to provide fresh capital, the bank remains significantly short of the minimum capital requirement (MCR) and is looking to identify fresh investors. The bank is confident of achieving significant development by July end with regards to capital injection; however, if tangible progress is not achieved within the given timeline, ratings may be faced with further downward pressure. While BBL has been able to reduce operating expenses and net loss on a timeline basis, equity erosion may continue in the absence of timely injection of fresh capital. SBP has imposed a minimum Capital Adequacy Ratio (CAR) of 23.0% for the bank; with actual CAR reported at 18.6%, the bank currently does not have room to grow its risk weighted assets. The bank experienced significant contraction in overall resource base to Rs. 34.1b (end-fy13: Rs. 53.4b) by end-fy14 on account of notable withdrawal pressure faced towards the end of the year. The bank had to call-back some of its loan facilities, liquidate placements and some investments in order to meet call on deposits; from Rs. 37.9b at end 3Q14, the deposit base shrank to Rs. 25.8b by year-end. Overall liquidity profile also stands weakened; liquid assets as a proportion of deposits and borrowings declined to 37.0% (FY13: 44.5%) by end-fy14. The corporate book though declining considerably by about Rs. 10.0b, still represented almost two-thirds of the total gross financing. In-line with its long term strategy, the bank expanded its consumer portfolio. Net infection in portfolio is reported at 1.0%. Given that consumer book has been built only recently, quality of exposures will be tested as the portfolio seasons. Net investment portfolio stood lower primarily on account of partial maturity of GoP Ijarah Sukuk during FY14; some Sukuk holdings were also liquidated for payments to depositors. With GoP Ijarah Sukuk constituting around 79.5% of total investments, credit risk associated with investment portfolio remains muted. The bank had projected break-even for FY14, however due to non-compliance with MCR and the corresponding floor on CAR, the bank had not been able to enhance its earning assets to a level sufficient to absorb the cost base. BBL is projecting a loss after tax of Rs m in FY15 with break-even targeted for FY16. Achievement of projections remains dependent on timely equity injection. Moreover, the successive cuts in discount rate over time is likely to place downward pressure on return on assets; meanwhile, the cost of deposits may exhibit some level of stickiness with respect to downward adjustment, unless the bank is able to enhance its market positioning by achieving regulatory compliance with respect to capital requirement. 2

3 FINANCIAL SUMMARY Appendix I (amounts in PKR billions) BALANCE SHEET DEC 31, 2014 DEC 31, 2013 DEC 31, 2012 Total Investments - net Islamic Financing & related assets - net Total Assets Borrowings Deposits & other accounts Subordinated Loans Tier-1 Equity Net Worth INCOME STATEMENT DEC 31, 2014 DEC 31, 2013 DEC 31, 2012 Net Mark-up Income Net Provisioning / (Reversal) (0.1) (0.8) 0.2 Non-Markup Income Operating Expenses Profit/ (Loss) Before Tax (0.6) (1.7) 0.03 Profit/ (Loss) After Tax (0.5) (1.1) 0.08 RATIO ANALYSIS DEC 31, 2014 DEC 31, 2013 DEC 31, 2012 Market Share (Advances) (%) 0.5% 0.7% 0.6% Market Share (Deposits) (%) 0.3% 0.6% 0.5% Gross Infection (%) 8.4% 5.8% 4.3% Provisioning Coverage (%) 88.7% 83.9% 66.0% Net Infection (%) 1.0% 0.9% 1.5% Cost of deposits (%) 7.3% 7.3% 9.0% Net NPLs to Tier-1 Capital (%) 4.6% 5.5% 6.1% Capital Adequacy Ratio (C.A.R (%)) 18.6% 20.8% 22.6% Markup Spreads (%) 2.4% 1.6% 1.5% Efficiency (%) 146.1% 199.7% 130.5% Basic ROAA (%)* -1.5% -2.6% -1.0% ROAA (%) -1.1% -2.3% 0.2% ROAE (%) -9.3% -20.0% 1.4% Liquid Assets to Deposits & Borrowings (%) 37.0% 44.5% 49.6% *recurring income less administrative expenses 3

4 ISSUE/ISSUER RATING SCALE & DEFINITIONS Appendix II 4

5 REGULATORY DISCLOSURES Name of Rated Entity Sector Type of Relationship Purpose of Rating Rating History Instrument Structure Statement by the Rating Team Probability of Default Disclaimer Appendix III Commercial Banks Solicited Entity Rating Medium to Rating Rating Date Long Term Short Term Outlook Rating Action RATING TYPE: ENTITY 6/29/2015 A- A-2 Negative Downgrade 6/30/2014 A A-1 Negative Maintained 6/28/2013 A A-1 Stable Reaffirmed 6/29/2012 A A-1 Stable Maintained 9/5/2011 A A-2 Stable Upgrade 4/22/2011 A- A-2 Stable Upgrade 6/29/2010 BBB+ A-3 Stable Downgrade N/A JCR-VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the credit rating(s) mentioned herein. This rating is an opinion on credit quality only and is not a recommendation to buy or sell any securities. JCR-VIS ratings opinions express ordinal ranking of risk, from strongest to weakest, within a universe of credit risk. Ratings are not intended as guarantees of credit quality or as exact measures of the probability that a particular issuer or particular debt issue will default. Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. JCR-VIS is not an NRSRO and its ratings are not NRSRO credit ratings. Copyright 2015 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS. 5