Lahore, June 14, 2019 (PPI-OT): Development Financial institutions (DFIs) largely operate on turf common to commercial banks. Limited depth in participation towards development of long gestation projects, low funding base, and high competition become their key challenges. Joint Venture Financial Institutions are DFIs jointly conceived by the two sovereigns with primary objective of identifying and nurturing multiple development initiatives. Their ratings are mainly characterized by sovereign ownership, adequate standards of governance, and relatively conservative risk appetite.
The ratings assigned takes into account PAIR’s ability to sustain its position among peers. The Company’s lending portfolio enhanced, during the year, in volumes. The lending portfolio quality is deteriorated by addition of a major group into ‘non-performing category’; though related provisioning has been created. This is one major reason which reduced the profitability. Management has created an adequate mix of sectors in advances, though client concentration remains high.
The capital and treasury division’s primary focus of investment was Government securities; minor portion vested in Equities, Sukuk and TFCs and funds. During the year, investment book remained largely same providing good cushion to liquidity. Borrowing from financial institution remains the primary source of funding, while management’s attention is required for enhancing the deposit base as it lately decreased further. Liquidity position and capitalization indicators remained stable.
Going forward, PAIR is focusing on strengthening the credit portfolio by tapping new customers. Management is cognizant of the fact that they need to find new niche for growth and development, hence new avenues like SME segment, are being explored. The CEO is not in Pakistan, though taking care of the company’s affairs from abroad.
The ratings are dependent on the company’s ability to sustain its financial profile while managing the associated risks encompassing active recovery of infected portfolio. The concentration level in funding and advances needs to be pro-actively managed. Consistent efforts by the management to add further diversity to their portfolio and at the same time stability at CEO’s position remains critical for the ratings.
For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com