Bank Loan Rating

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Credit Rating Company Limited vis.com.pk 1 VIS Credit Rating Company Limited Bank Loan OCTOBER 2025 BANK LOAN RATING VIS Credit Rating Company Limited

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Credit Rating Company Limited vis.com.pk 2 VIS Credit Rating Company Limited Bank Loan OCTOBER 2025
Table of Contents
SCOPE OF CRITERIA…………………………………………………………………………………………………………………………………3 SUMMARY OF CRITERIA CHANGES………………………………………………………………………………………………………...3 AN OVERVIEW OF RATINGS FRAMEWORK……………………………………………………………………………………………3
PROCESS FOR BLR RATINGS.........................................................................................................................................................3
FINANCING STRUCTURE ................................................................................................................................................................4
NOTCHING THE RATING ................................................................................................................................................................4
CONSIDERATIONS IN BLRS ...........................................................................................................................................................5
RATING SCALE & DEFINITIONS……………………………………………………………………………………………………………….6

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Credit Rating Company Limited vis.com.pk 3 VIS Credit Rating Company Limited Bank Loan OCTOBER 2025 SCOPE OF CRITERIA Similar to instrument ratings byVIS, aBank Loan Rating (BLR) indicates thedegree of risk regarding timely payment of the interest and principal or commitments being rated. In addition to this, VIS also places significant emphasis on the banking behavior of the counterparty with its existing bank partners as well as collateral offered against the facilities. All BLRs are assigned the acronym “blr” in the long term to distinguish them from other ratings. SUMMARY OF CRITERIA CHANGES The Bank Loan Rating Methodology dated February 2024 has been reviewed, and the fundamental criteria outlined therein remain unchanged. AN OVERVIEW OF RATINGS FRAMEWORK BLRs are aimed at enhancing the liquidity and transparency of the bank loan market. BLRs incorporates the underlying credit risk of the borrower and support provided by the collateral and covenants package, which improves the recovery prospectsof specificfinancings.BLRcombinesVIS’sassessmentofanorganization’s ability to meet its unsecured financial obligations, with the likelihood of ultimate repayment of the particular financing being rated through the enforcement of securities by the lender. The higher the entity (i.e. senior unsecured debt) rating, the more importance is given to timeliness of repayment of the financing as the probability of default diminishes; the lower the entity rating, more emphasis is placed on the recovery prospects of the financing in the post default scenario. BLRs provides important independent risk appraisals of specific financings, where ease in financing indicates an objective basis for pricing of bank financings linked to the risk factor indicated by the rating. A further potential benefit is the possible creation of a secondary market for repackaged rated financings (such markets already exist in most developed economies) providing lenders with a fresh source of funding and increasing the flexibility of the lender’s asset portfolio. PROCESS FOR BLR RATINGS The initial process of assigning a BLRs is similar to that of an entity rating i.e. VIS’s analysts examine all qualitative and quantitative factors that impact the credit quality of the borrower. Once the notional/shadow or assigned entity rating has been arrived at; our analysts review the specific characteristics and the structure of the financing being rated in order to determine the extent to which the lender gains advantage or disadvantage with respect to the unsecured creditors of the borrower in the case of default on that particular financing.

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Credit Rating Company Limited vis.com.pk 4 VIS Credit Rating Company Limited Bank Loan OCTOBER 2025 VIS places the BLRs under surveillance for their outstanding tenor and will monitor the financial performance of the borrower; status of security and enforcement of covenants of the financing being rated. And specific BLRs may be maintained, upgraded or downgraded at any time during their tenor. For the purpose of maintaining uniformity, VIS rates BLRs on its issuer/issue rating scale. Short term loans such as working capital finance are mapped on to the short term scale, whereas ratings of long term loans will be mapped on long term issuer/issue rating scale. This is in line with VIS’s methodology on rating debentures. Such ratings are appended with the suffix (BLRs) to distinguish from other credit ratings. FINANCING STRUCTURE The financing structure is analyzed to cover such factors as the positioning of the financing in the capital structure (e.g. the higher the positioning, the better will be the chances of ultimate recovery), the repayment schedule of the financing (e.g. shorter tenor and faster amortization of the financing may mitigate the level of uncertainty associated with the future performance of the borrower), and quality and reliability of security against the financing. In reference to assessment of quality of securities, a number of factors are taken into account such as their current valuation (including forced sales values), nature of charge, probability of obsolescence, and the level of enforceability of the securities as incorporated in the legal documentation. The asset valuation technique used will vary according to the nature of the business of the borrowing entity and that of the underlying securities. Assets that do not have saleable value or utility outside of the business of the entity may not be taken into account for notching relative to the entity rating. Presence of other covenants does not automatically translate into a higher rating; however, the covenants can serve to reinforce the security package. NOTCHING THE RATING The above explained analysis determines the degree of variation of the BLRs from the notional/shadow or assigned entity rating of the borrower. While recovery statistics may not be readily available in Pakistan, the practice of notching is in line with global studies on ultimate recoveries that continue to reinforce the importance of debt structure for facility level recoveries. Generally speaking, at the facility level, recoveries are likely to be higher, where there is a larger cushion of structurally subordinated debt. The legal environment also has significant bearing on the effectiveness of enforcing collateral and the length of time required for recovery. Impact of the same is incorporated in BLRs assigned by VIS. Secured financings may normally receive a rating that is one to three notches higher than the notional/shadow or assigned entity rating of the borrower. VIS adjusts its notching
policy as the rated entities approach investment grade resulting in smaller variations from their entity ratings for higher rated entities.As the ratings become higher,the reliance on collateral becomes progressively lower. Conversely, in the lower rating grades, the ultimate recovery prospects and claim priority assume greater importance. An unsecured loan that is effectively subordinated to other senior unsecured debt may be rated below the notional/shadow or assigned entity rating of the borrower.

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Credit Rating Company Limited vis.com.pk 5 VIS Credit Rating Company Limited Bank Loan OCTOBER 2025 CONSIDERATIONS IN BLRS (these are more elaborately explained in Corporate Credit Risk methodology)

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Credit Rating Company Limited vis.com.pk 6 VIS Credit Rating Company Limited Bank Loan OCTOBER 2025 RATING SCALE & DEFINITIONS Rating scale and Definitions may be accessed at (https://docs.vis.com.pk/docs/VISRatingScales.pdf)

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Credit Rating Company Limited vis.com.pk 7 VIS Credit Rating Company Limited Bank Loan OCTOBER 2025 Islamic International Rating Agency – Bahrain – iira.com Credit Rating Information & Services Ltd. – Bangladesh – crislbd.com Japan Credit Rating Agency, Ltd. - Japan China Chengxin International Credit Rating Company Limited - China 128/C, 25th Lane off Khayaban-e-Ittehad, Phase VII, DHA, Karachi Tel: (92-21) 35311861-64 431, Block-Q, Commercial Area, Phase-II, D.H.A. Lahore - Cantt. Tel: (92-42) 35723411-13 www.vis.com.pk info@vis.com.pk VIS Credit Rating Company Ltd. Information herein was obtained from sources believed to be accurate and reliable; however, VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Rating is an opinion on credit quality only and is not a recommendation to buy or sell any securities. Copyright VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS. DISCLAIMER