LAHORE, Jan 13: The Pakistan Credit Rating Agency (Pacra) has maintained the long-term rating at “A+” (single A plus) and the short-term rating at “A1” (single A one) of the First Dawood Investment Bank Limited (FDIB).

The ratings denote a low expectation of credit risk emanating from a strong capacity for timely payment of financial commitments, says a Pacra press release on Friday.

It says the ratings of two tranches of secured TFCs of Rs253 million and Rs345 million have also been maintained at “AA-” (double A minus). The rating also denotes a very low expectation of credit risk. The first TFC tranche carries interest at 175bps plus the SBP discount rate with a floor of 13.5 per cent and a ceiling of 17.5 per cent, payable semi-annually.

The second tranche was issued at the same rate but with a floor of 12.25 per cent and a ceiling of 16.25 per cent payable semi-annually. These instruments are of perpetual nature and have a call and put option exercisable at the end of every five years from the date of issue. The TFCs are secured by way of registered charge over all present and future assets and receivables of FDIB with a margin of 20 per cent.

The bank’s ratings reflect its sound asset quality and strong risk absorption capacity augmented by substantial amount of unrecognized reserves. The ratings also take into account the bank’s subdued profitability exhibited over the past couple of years, attributable mainly to capital losses/evaluation deficit on its investment portfolio. While the ratings recognize the management’s ongoing efforts to expand and diversify its revenue base through enhancement of participation in the recently initiated fee based investment banking activities. Given the increasing competition in the sector, the announcement says, it will take some time before a reasonable and stable revenue stream from these avenues could emerge.