The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Maintains Rating of The Bank of Punjab | TFC I | Dec-16

Rating Type Debt Instrument
(24-Jun-22 )
(25-Jun-21 )
Action Maintain Upgrade
Long Term AA AA
Short Term - -
Outlook Stable Stable
Rating Watch - -

The Bank of Punjab has built a franchise around its name, which itself is a reflection of strong parentage. The bank enjoys a respectable position in its peer universe, also reflected by its system share. The parentage of the bank has provided associated benefits to the institution. The areas of focus envision three phases (control, consolidation & growth), which help lead the bank from augmented control environment to growth arena. Customer focus and geographical diversification and expansion are the key elements. The Bank grew its deposit base by 20.1% to stand at PKR 1,003bln - higher than the industry's growth where deposits remained tilted towards saving. The system share of the Bank has taken a positive contribution from the growth, which would lead the bank towards being classified as a large bank. The share of government and public sector deposit remain a challenge. During CY21, total net income of the bank displayed improvement primarily attributable to enhanced net markup income. Further, reversals of provisioning showed prudent asset management that augmented bank’s YOY net profit to increase by 79%, highest profit surge in the banking industry. Asset quality improved along with growth in advances. whereby the growth in risk assets will be covered through insurance and first loss guarantees wherever available. The top management is very much motivated and focused in further enhancing profitability and strengthening the Bank's relative position. There is a dilution in the CAR of the bank, prudent management of CAR is important. For this, the bank is in process of raising Tier 1 & Tier 2 capital, which is further expected to be supplemented by internal generation of capital
The ratings are dependent on the financial risk profile of the bank, mainly emanating from volumetric increase in core operations and continued healthy profitability trend in line with the
management's plans. Any weakening in asset quality will in turn put pressure on the bank's profitability and risk absorption capacity

About the Entity
The Bank of Punjab, established under the BOP Act 1989, is listed on Pakistan Stock Exchange (PSX). The bank operates a vast network of 664 branches as at end Mar-22, mainly concentrated in
Punjab. The Government of Punjab (GoPb) holds majority stake in BOP (57%), whereas the rest is widely dispersed. The bank’s President & CEO – Mr. Zafar Masud was appointed as President &
CEO by the GoPb on 17th March, 2020 and assumed the charge on 16th April, 2020. The senior management consists of seasoned bankers. The current team has played a pivotal role in the bank's revival; their continuity and cohesiveness is critical for successful execution of the envisaged business plan.

About the Instrument
BoP issued first rated, privately placed, unsecured and subordinated TFC of the amount PKR 2.5bln in Dec-16. The purpose of the instrument was to raise Tier-II capital to comply with the State Bank of Pakistan’s regulation to maintain the capital adequacy ratio. The tenor of the instrument is 10 years. The profit is based on 6M-KIBOR plus 100 bps p.a and is paid semi-annually in arrears on the outstanding principal amount. This TFC is unsecured and subordinate as to the payment of principal and profit to all other indebtedness of the instrument bank, including deposits and is not redeemable before maturity without prior approval of the SBP.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.