PACRA Assigns Initial Rating to The Bank of Punjab | Tier 2 Capital TFC | PKR 7.5695bln | Jun-24

The Bank of Punjab (BOP) has built a franchise around its name, which itself is a testimony of strong parentage. The parentage of the bank has provided associated benefits to the institution. It functions as a solid backing in times of need and furnishing entry into profitable segments, where other institutions are reluctant to enter. At end-Dec23, the deposit base of the Bank increased by 24% to stand at PKR 1,521bln where deposits remained tilted towards saving. The Banks' net advances have grown by 37% YoY to stand at PKR 806bln. Consequently, ADR was increased to 53% owing to increased lending to the public sector. During CY23, the Profit Before Tax of the Bank increased by 15% to stand at PKR 21.2bln attributable to enhanced non-markup income clocking in at PKR 17.7bln with major contribution from gain on investments and recoveries. The investment book of the bank inclined to PKR 913bln mainly comprises government securities. A major proportion of the investment book is now repriced, which would provide advantage to profits, going forward. At end-Dec23, the CAR of the bank strengthened to 18.4% owing to the successive issuance of ADT-I and Tier-II bonds along with capital retention.
The management, led by sound leadership, is poised to strengthen the profile of the bank and is taking active measures to overcome the challenges. In this regard, the management is working on diversification in the revenue stream with a focus on tapping on SMEs, retail segments, and trade business of the country. Moreover, the bank is planning to build global presence with the establishment of offshore entities.

About the Entity
The Bank of Punjab, established under the BOP Act 1989, is listed on the Pakistan Stock Exchange (PSX). The bank operates a vast network of 815 branches as of the end-Dec23, mainly concentrated in Punjab. The Government of Punjab (GoPb) holds a majority stake in BOP (57%), whereas the rest is widely dispersed. Mr. Zafar Masud is the President & CEO of the bank. The senior management consists of seasoned bankers. The current team has played a pivotal role in the bank's revival; their continuity and cohesiveness are critical for the successful execution of the envisaged business plan.

About the Instrument
The Bank has issued an unsecured, subsequently listed, subordinated and rated tier 2 capital term finance certificates of the expected amount PKR 7.5695bln to contribute towards BOP's Tier II Capital. The funds raised are to be utilized in the Bank's business operations as permitted. The instrument is tenured up to 10 years of issue date. The expected profit rate is 6M-KIBOR plus 125bps p.a. and payable semiannually in arrears on the outstanding principal. Neither profit nor principal will be payable in respect of TFC, if such payment will result in a shortfall in the bank’s MCR or CAR. The bank may call the TFCs, with prior approval of SBP, after five years from the date of issue.