CCCECECCECCECOCECCECCECCCECEOCECOCEECECECCCOCOCECCEOCECCEEEECECEESBIS PDPAPVIVBISBIAIVIBDPVIIPIIIDIRIPDSIIAIPIIPIIDVI IPP DD crab ev Sracr) Credit Rating Report (Surveillance) Analysts: Tahmina Islam tahmina.islam@crab.com.bd Shahtaj.Noor Shahtaj.noor@erab.com.bd The City Bank Ltd. Assigned Rating: “Long Term : Az Short term ST-2 Outlook: Stable “Date of Rating: 30 June 2020 Valid Til: 30 June 2021 Methodology: CRAB's Bank Rating Methodology (www.crab.com bd) RATING BASED ON: Audited financial statements up to 31 December 2019 and other relevant quantitative as well as qualitative information up to the date of rating declaration. BANK Pronite ‘The City Bank Limited was incorporated in March 1983 as a private ‘commercial bank, The Bank went into IPO in 1987 and got listed in both DSE and CSE. The paid up capital of the Bank reached BOT 10,163.87 million against authorized capital of BOT 15,000.0 million at the end of December 2019. The Bank offers all kinds of banking and investment services for retail, SME as well as corporate customers. Presently the Bank has 132 branches including 11 SME/Agri branches and 1 branch is designated as Islamic banking branch. Besides these traditional branches, the bank offers alternative delivery channels; countrywide network of ATM's and CDM (own: 369) and 7 priority centers. It also offers SMS Banking and Internet Banking services. It has already started its Customer Call Center operation. The Bank is pioneer in introducing dual carrey credit card in the country. The Bank has a retail card base m RATIONALE of more than 1.06 million customers. The Bank has 4 subsidiary companies named i) City Brokerage Limited, ii) City Bank Capital Resources Limited, ii) CBL Money Transfer SDN. BHD and iv) City Hong Kong Limited. Credit Rating Agency of Bangladesh Limited (CRAB) has affirmed AA: (Pronounced Double A two) rating in the long term and ST-2 rating in the short term of The City Bank Limited based on audited financials up to 31st December 2019 and other relevant information. The rating reveal the Bank's strength in income generation derived from its corporate and retail business segment. ‘On the other hand, a principal concern of the Bank was gross NPL ratio continuing from previous years along with fresh NPL generation. San EEEEEEeeeeeeeeeeeeEeee ‘CRAB I CRAB Ratings on Rating Digest | 30 june 2020 Page 1 of 19 Managing Director ( Credit Rating Agency of Bangladesh Ltd. i =< ct fea) > 6 ® =PISITIPIPMWTSIVIPITAPSISIMAIIIARIVDIBAIAWPIMIVIVIVVIIAI Ds crab CaN ETT SE TeU The City Bank Limited Earning Generation Capacity and Profitability: There was 17.7% growth of net interest income in 2019 which had continued on the back of interest spread. Net interest margin of the Bank enhanced 0.2 percentage points in 2019.ROAE enhanced 1.7 percentage points mainly resulted from increased PAT in 2019. The Bank's leverage ‘multiplier enhanced to 13.6 times in 2019. Cost to income ratio of CBL reduced 3.3 percentage points at the end of 2019 due to enhanced operating income. Liquidity profile: in 2019 deposit growth of the bank was 20.2%. Term deposit shared 63.9% of the total deposit of BL in 2019. Due to industry impact the Bank's funding expense enhanced thus cost of deposit & borrowing at the end of 2019 was 5.6%. The Bank's liquid asset to deposit and borrowings ratio enhanced to 28.4% in the same duration due to enhanced investment in Govt. securities. At the end of 2019, LCR and NSFR of the Bank were 142.6% and 107.4% respectively. Non Performing Loan: In 2019 absolute amount of NPL grew by 15.6%. Gross NPL ratio enhanced by 0.4 percentage points to 5.8% due to fresh NPL generation. In 2019 fresh NPL ratio was 3.7% and loan reschedule was 1.3% of total loan portfolio respectively. Out of total NPL, 77.8% belonged to bad & loss category followed by substandard category (17.6% of NPL) and doubtful category (4.6% of NPL). There was BOT 142.5 million excess provisions against regulatory requirement at the end of 2019. Net NPL to core capital of the Bank was 27.0% at the end of 2019. Capital to Risk Weighted asset: Capital to risk weighted asset ratio of the Bank enhanced to 15.2% in 2019 (having Tier 1 ratio of 9.7%). Core capital to total exposure (on and off balance sheet) of the Bank was 5.0% at the end of 2019, Around 97.3% of total corporate exposure of the Bank was rated. Large loan concentration in loan portfolio: The Bank's loan portfolio had shown substantial large loan concentration. On an average 34.9% of its funded loans belongs to its top 50 borrowers for the last 5 years. In 2019, the Bank's top 50 funded loans and advances held 28.9% of total loan portfolio (2018: 26.3%). However, all loans were reported as unclassified at the end of 2019. The Bank had sanctioned 42 large loans each above 10% of the total capital of the Bank in 2019 outstanding loan amount was BOT 81,985.2 million, Corporate Profile ‘The City Bank Limited was incorporated in March 1983 as a private commercial bank. The Bank went into IPO in 1987 and got listed in both DSE and CSE. The paid up capital of the Bank reached BOT 10,163.87 million against authorized capital of EDT 15,000.00 million at the end of December 2019. The Bank offers all kinds of banking and investment services for retail, SME as well as corporate customers. Presently the Bank has 132 branches including 11 SME/Agri branches and 1 branch is designated as Islamic banking branch. Besides these traditional branches, the bank offers alternative delivery channels; countrywide network of ATM's (own: 369). It also offers SMS Banking and internet Banking services. It has already started its Customer Call Center operation. The Bank is pioneer in introducing dual currency credit card in the country. The Bank has a retail card base of more than 1.06 million customers. The Bank has four subsidiary companies named 1) City Brokerage Limited, 1) City Bank Capital Resources Limited i) C8L Money Transfer SDN. BHD and iv) City Hong Kong Ltd, M_ OPERATIONAL PERFORMANCE The Bank's revenue composition reflected net interest income enhanced share in 2019. On an average, net interest income contributed 53.1% of total revenue for the last four years. In 2019, total operating income of the Bank was dominated by net interest income (59.2% of total) followed by ‘commission/fees & exchange income (18.5% of total) and investment income (11.4% of total). On an average, C8L had a stable other operating income of (10.8% of total); derived from its retail card base of more than 1.06 million customers. Other operating Income was BOT 1,985.5 million in 2019; among (CRAB I CRAB Ratings on Rating Digest | 30June 2020 Page 2 of 19 pePIFIFIIDPIPIDIVISHIIIASAIPIDIIVIIVTIIVI TDI MIVIADRs Gra Co VN ET which BOT 1,830.3 million came from credit cards (issue, merchant commission, late payment fees etc.) Table 1 Key Performance indicator of the bank Year ended December 31 (wil, BOT) 2019 2018 2017. Amount Growth Amount Growth Amount Growth ©) 06) 3) Interest income. 26,819.2 17.0 22,916.90 36.5 ‘16,7840 4.6, Interest Expense 15,987.2, 16.6 13,7164 47.7 «9,288.6 (2.9), Net Interest Income 10,832.0 17792005 22.8 7,495.3 15.7. Investment income 2,086.2 13.2 1842.4 (4.0) 2,791.0 (41.2) Commission/Exchange & Brokerage 1,891.8 (41.9) 3,254.0 14.1 2,851.8 34.2 Income Other Operating Income 1,985.6 23.7 1,605.1 (9.7) 1,777.9 69.7 Total Operating Income 18,284.7 15.0 15,9020 6.6 ___—*14,916.1 3.6 Personnel expense 5,266.4 8.5 4,854.3, 14.8 4,226.9 18.7 ‘Overhead expense 4731.1 83 43686 144 3,819.7 19.2 Total Operating Expense 9,997.6 8.4 9,222.8 146 8,046.6 17.3 Pre Provision Profit, 8,287.2 24.1 6,679.2 (2.8) 6,869.5 (8.9) Provision (2,555.8) _(210.0)__2,324.3 35.3 17176 7.1) Profit Before Taxes 5,731.4 316 4,354.9 (15.5) 5,151.9 5.7) Provision for tax 3,259.7, 39.5 2,337.0 53.4 1,523.5 0.9 Profit After Tax. 2,471.6 22:5 2,017.9 (44.4) 3,628.4 (8.3) Due to moderate growth of loans & advances during 2019, interest income of the Bank grew by 17.0%, Interest expense increased 16.6% on the back of enhanced deposit rate in the banking industry. As an overall effect, net interest income increased by 17.7% in 2019 and reached BDT 10,832.0 million. Interest income of the Bank was mainly dominated by interest on loans and advances. In 2019, 27.0% of total interest on loans came from interest (on industrial term loans followed by interest on short term loan (19.0% of total interest income). Investment income of the Bank enhanced to BOT 2,086.2 million in 2019 due to enhanced income from treasury bills and bonds. Commission, fees & exchange income of the Bank reduced by 41.9 in 2019 and reached BOT 1,891.8 million mainly resulted from other fees and charges as well as from increased off-balance sheet exposure. ‘As an overall effect, total operating income of the Bank grew by 23.7% in 2019 and reached BOT 18,284.7 million resulted from the increased income of the major contributing sectors. Total operating expense increased by 8.3% in 2019. Around 52.6% of operating expenses in 2019 are comprised of personnel expenses and the rest are infrastructure and overhead expense. Cost to income ratio of the Bank reduced to $4.7% in 2019 reflects efficiency. Table 2 Efficiency Ratios of the Bank Year ended December 31 Particulars 2019 2018 2017. 2016 2015 2014 Cost to Income Ratio (%) 547 58.0 53.9 47.6 47.8 51.3 Staff Cost to Income Ratio) 28.8. 30.5 28.3 25.4 24.9 27.2 The Bank's pre provision profit reached EDT 8,287.2 million in 2019. However, provision expense enhanced in 2019 on the back of fresh NPL generation. The Bank's tax expense grew by 39.5% in 2019. Profit after tax of the Bank reached BDT 2,471.6 million at the end of 2019. CCRAS I CRAB Ratings on Rating Digest | 30 June 2020 we Page 3 of 19