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The Pakistan Credit Rating Agency Limited
                                                                         STANDARD CHARTERED BANK (PAKISTAN) LIMITED (SCBP)
Ratings (June 2007)                                                             ASSESSMENT
Standard Chartered Bank (Pakistan) Limited                                        The ratings reflect the bank’s strong financial profile, a leading market position, and quality
                                                                                  management team. The ratings also recognize the sound financial strength and international profile
(SCBPL)                                                                           of the parent – Standard Chartered Bank (SCB) – in the banking industry. SCBP, being an
                                                                                  important player in the SCB group, benefits from the technical resources and cumulative expertise
                                                    New                           developed at the group level. This will continue to help in maintaining a strong banking platform,
                                                                                  robust risk management systems and processes, and product innovation.
 Entity                                                                           Following the amalgamation of SCB Pakistan branches and the former Union Bank Limited
  Long-Term                                         AAA                           (UnBL) with and into SCBP, the bank has emerged as one of the leading players in the banking
  Short-Term                                         A1+                          sector in terms of total assets and outreach. In line with the group’s strategy, the banks’ main focus
  TFCs Issue                                                                      is on wholesale and consumer banking through offering a wide range of products and services. The
                                                                                  SCB’s Branch operations in Pakistan recorded impressive growth in the past four years, and the
  1st Issue PKR 750mln                              AAA                           acquisition of UnBL was aimed at enhancing the SCB’s competitive position in the sector. UnBL, a
                                                                                  medium sized bank with established niche in consumer and SMEs segments, provides synergic
  2nd Issue PKR 750mln                              AAA                           benefits, thereby providing the impetus for sustained growth.
                                                                                  The integration process of the two entities in operational terms is moving well, and the management
                                                                                  expects to complete the process by Sep07. Going forward, while capitalizing on the potential of the
  3rd Issue PKR 1000mln                             AAA                           combined entity, the management aims to further improve its market standing with strong emphasis
                                                                                  on proactive risk management. In this regard, the bank plans to further expand its outreach,
                                                                                  especially focusing on non-metropolitan cities. Meanwhile, the management intends to leverage the
                                                                                  strong SMEs business platform inherited from UnBL. Although the business strategy of the bank
                                                                                  focuses on high yielding but at the same time relatively risky segments, this is well in line with the
Financial Data                                                                    business model of the SCB group. The group has proven expertise of managing the associated risks
PKR (mln)                                                                         in various economic environments. Given the management’s growth plans, ability to generate
                                       31-Mar-07              31-Dec-06           sizeable fee based income, and relatively favourable cost of deposits due to strong franchise value,
                                                                                  the bank is expected to show robust profitability. However, though the ROA is expected to be in
Total Assets                            254,173.6              246,317.8          line with peers, the ROE would be stressed in the initial phase due to significantly increased equity
Equity                                   41,982.8               40,558.8          base, the bulk of which represents goodwill.
Net Income                                1,434.8                5,709.5          The risk management framework, support systems and other processes employed by the bank,
Equity/Total Assets %                       16.52                  16.47          implemented with group assistance, are expected to remain highly effective. The group exercises a
                                                                                  high degree of supervision over the bank, and provides guidance and support through an established
  ^Based on un-audited results for the 3-months ended                             structured mechanism.
    March 31, 2007.                                                               The NPLs as a proportion of total advances are moderately high, mainly due to the infected
                                                                                  portfolio inherited from UnBL. However, the loss coverage ratio is strong, given the group’s
                                                                                  standards applied for provisioning are more stringent than local regulations. There has been a
                                                                                  notable increase in NPLs from consumer segment, mainly unsecured financing, in recent months.
Analysts                                                                          Besides rising interest rates and increasing inflationary pressures, the rise in NPLs was also
Moin Khalid                                                                       attributable to the impact of ongoing integration process in the collection mechanism. However, the
+92 42 5869504                                                                    management is taking appropriate measures to tighten control on recoveries, while also realigning
                                                                                  its policies in line with the changing market dynamics.                                                                    The bank has one of the highest capitalization levels in the sector. However, it is not reflected in
                                                                                  CAR (end-Mar07: 10.7%), as a large part of the equity represents goodwill paid on acquisition of
Shahzad Saleem                                                                    UnBL, which is deducted for the purpose of computation of regulatory capital requirement.
+92 42 5869504                                                                    However, given the strong performance prospects of the bank, the expected increase in equity                                                                 through profit retention is likely to comfortably support the targeted growth.
                                                                                KEY RATING DRIVERS
                                                                                  SCBP’s ratings are dependent on the effectiveness of the management’s strategies in achieving the
                                                                                  targeted growth, and maintaining the bank’s relative positioning in the sector. Meanwhile,
TFC Issues                                                                        effectiveness of the risk management function in keeping the associated risk at a low level would
                                                                                  remain important.
After the merger, SCBP has acquired all the assets and
liabilities of Union Bank Limited, including its three                          SUPPORT
listed unsecured subordinated TFCs. The first TFC                                 Given the bank’s status of a virtually wholly owned subsidiary of SCB, a common name, and
(PKR 750mln) was issued during December 2002 for a                                increasing importance of the operations in Pakistan in the overall business of the group, support is
tenor of 5 1/2 years at a floating rate of latest cut-off                         expected to be forthcoming should the need arise.
yield on 5 year PIB plus 225bps with a floor of 11.00%                          PROFILE:
and a cap of 15.50%. The major principal redemption                               Standard Chartered Bank (Pakistan) Limited (SCBP), a majority owned subsidiary (around 99%) of
to be made in three instalments has commenced in                                  Standard Chartered Bank UK, was incorporated in Pakistan in Jul06. SCBP commenced its business
June 2007. The bank issued its second unsecured                                   following the merger of Union Bank Limited and Standard Chartered Bank (Pakistan) Branches,
subordinate TFCs (PKR 750mln) for a tenor of 7 years                              with and into SCBP, effective December 30, 2006. The combined entity has emerged as the sixth
during December 2003. The profit payment is at a                                  largest bank in Pakistan with around 6% share in system assets, and a network of 115 branches across 22
floating rate of latest cut-off yield of 5 years PIB plus                         cities. The seven member BoD, mainly comprises personnel holding key positions in Standard
75bps with a floor of 5% and cap of 10.75%. The                                   Chartered Group. The bank’s CEO has an extensive local and international banking experience. He
major principal redemption will be in six unequal                                 has been with the group since 1991, and has held various senior positions, including the CEO of
instalments, commencing from the 54th month of issue.                             Pakistan’s operations since July 2003.
The third TFC of PKR 1,000 million was issued in                                  The ultimate holding company for the Standard Chartered Group is Standard Chartered plc, a
January 2006, for 7-year tenor, with profit payable at a                          company incorporated in UK. Standard Chartered has a history of over 150 years in banking and
floating interest rate of 6-months KIBOR + 2%.                                    operates in world’s emerging markets with an extensive global network of over 1,400 branches
Principal redemption will be in six unequal                                       (including subsidiaries, associates, and joint ventures), in over 50 countries in the Asia Pacific
installments, commencing from the 54th month of                                   region, South Asia, the Middle East, Africa, the United Kingdom, and the Americas. Standard
issue.                                                                            Chartered Bank, UK carries an international rating of ‘A+’ by Standard & Poor’s and Fitch.

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