JCR-VIS Re-affirms Entity Ratings of House Building Finance Company Limited at A/A-2

Karachi, June 24, 2011: JCR-VIS Credit Rating Company Limited has reaffirmed the medium to long-term entity rating of ‘A’ (Single A) and short-term rating of ‘A-2’ (A-Two) assigned to House Building Finance Company Limited (HBFCL), formerly known as House Building Finance Corporation Limited.

 The rating incorporates strong sponsorship of HBFCL jointly held by the Government of Pakistan (GoP) and the State Bank of Pakistan (SBP). HBFCL also has federal government guarantee against credit lines obtained from SBP that constitute more than 90% of total borrowings.

Following the appointment of current Chief Executive Officer, the executive management team has also been strengthened and now comprises well-rounded professionals. During the last year, HBFCL successfully implemented a Voluntary Separation Scheme, which was funded partly by the Federal Government. This is expected to result in cost savings for the company in FY11 and onwards, in addition to creating space to induct professionals. Given the rapidly changing dynamics of business and modern ERP requirements, work on an integrated business application is in process, which is expected to improve data handling and MIS reporting capabilities.

While current level of infection in the portfolio is substantial, the management is revising under-writing guidelines to address weaknesses in the previous lending methodology. Portfolio seasoning over time of lending undertaken in the last two years will help quantify the results of this change. So far, fresh accretion of NPLs on a year-on-year basis is substantial.

Disbursements had been curtailed over the last two years, in the backdrop of the prevailing economic crunch and high interest rates, while the management was also focused towards strengthening policies. As part of the overall focus towards improving

liquidity management, the institution has built sizeable liquid reserves while continuing to grow at a moderate pace. The company’s investment portfolio has almost entirely been placed in short term government paper, representing minimal credit and interest rate risks.

The increase in investment portfolio, generating healthy returns and reduction in cost base is expected to positively impact future profitability. With credit reforms and improvement in collection processes, HBFCL expects fresh accretion of delinquent cases to taper off. JCR-VIS will continue to track the trend in this respect, for impact on future profitability.

The ratings continue to be placed under ‘Rating Watch-Developing’ status on account of negotiation with SBP and Ministry of Finance for a recapitalization plan, which may entail conversion of SBP debt into equity and injection of additional capital. This would allow the institution to improve capitalization levels and meet the regulatory minimum capital requirement. JCR-VIS will continue to monitor the company’s performance for timely completion of the restructuring process.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 501) or Ms. Sobia Maqbool, CFA (Ext: 506) at 35311861-70 or fax to 35311872-3.