Karachi, June 22, 2023 (PPI-OT): VIS Credit Rating Company Ltd. (VIS) has reaffirmed entity ratings of Pak Oman Investment Company Limited (POIC) at ‘AA+/A-1+’ (Double A Plus/A-One Plus). The long-term rating of ‘AA+’ signifies high credit quality, protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. The short-term rating of ‘A-1+’ signifies highest certainty of timely payment; short term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding and safety is just below risk-free Government of Pakistan’s short-term obligations. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on June 28, 2022.
POIC’s ratings are supported by its joint venture shareholding structure, with equal ownership held by the Government of Pakistan (GoP) and the Sultanate of Oman (SO). S and P upgraded the sovereign rating of the SO from ‘BB-’ to ‘BB’ (Stable) in Nov’22 and then assigned a ‘Positive’ outlook to the assigned rating in Mar’23. Operating from its headquarters in Karachi, POIC extends its outreach through a branch office in Lahore and representative offices located in Islamabad, Gwadar, and Muscat.
In the backdrop of challenging economic conditions, disbursements were made with a cautious strategy and gross loan portfolio were largely maintained. Key sectoral exposures included textiles, power, construction and services. Given small size of lending portfolio, concentration has remained high. The management intends to keep following conservative strategy and tap small ticket size clients across different sectors. The asset quality indicators of the company experienced signs of weakening, with some increase in infection ratios. The company adopted IFRS-9 during 1QFY23. The provisioning coverage thereby increased significantly and resultantly net infection improved. Maintenance of asset quality remains a key rating driver.
Investment portfolio increased significantly in the period under review. The increase was largely manifested in government securities. With the rising policy rates, the company recorded considerably mark to market deficit on the PIBs portfolio. The investment strategy entailed buying floating rate PIBs which constituted around 98% of the overall PIBs portfolio at end-1QFY23; the related market risk is therefore considered manageable. Investment portfolio comprises 96.7% of the government securities, thus implying low credit risk.
Overall profitability indicators stood lower primarily on account of pressure on mark-up spreads and provision charge against non-performing loans during FY22. However, despite significantly lower non mark-up income, net profit stood higher during 1QFY23 primarily on the back of higher net mark-up income and reversal in provision against loans and advances. Liquidity profile in terms of liquid assets as a proportion of total deposits and borrowings improved considerably. The POIC, in line with other DFIs, relies on SBP’s pass through financing schemes, financial institutions, and deposits for its funding requirements. With limited outreach and competition from commercial banks, POIC would continue to face challenges in mobilizing cheaper deposits.
The company continues to pay out cash dividend. This along with additional provisioning due to adoption of IFRS-9 has caused the Capital Adequacy Ratio (CAR) to decrease, though still comfortably above the minimum regulatory requirement. Despite lower Tier-1 capital, net NPLs as a proportion of Tier-1 capital decreased considerably by end-1QFY23 mainly owing to lower net NPLs.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/
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