The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of The Bank of Punjab

Rating Type Entity
(27-Jun-18 )
(30-Dec-17 )
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect the sustained risk profile of Bank of Punjab (BoP) with an appreciable improvement in profitability and asset quality over the last few years which supplemented the equity base. During current year, the bank has recorded commendable uptick in revenue base – both interest earned and income from fee, commission. However, the bank recorded loss for the year on account of providing for certain infected exposures which were previously secured by Letter of Comfort (LoCs) by the sponsor. Hence, the bank’s recorded significant improvement in its coverage ratio. The bank’s bottom-line again turned green in 1QCY18. The bank witnessed reduction in the non-performing loans inherited by the current management. The bank's Capital Adequacy Ratio (CAR) clocks in at 9.73% at Dec’17 which improved to 10.53% in 1QCY18. Tier-I CAR declined to 7.61% (Dec’16: 9.40%) due to provisioning against NPLs earlier covered under LOCs. The bank enjoys relaxation from the applicable CAR till Jun’18 granted by the State Bank of Pakistan. Timely re-couping the CAR is essential to ratings. The bank envisages growth in advances wherein the criteria is higher margins with sustained risk profile. Meanwhile, expansion in deposit base with low cost focus, while attracting a wide customer range, is on the cards.

The ratings are dependent on the financial risk profile of the bank, mainly emanating from sustenance of capital adequacy and continued healthy profitability trend in line with the management's plans. Meanwhile, improvement in asset quality and upholding better governance standards remain imperative.

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 536 branches as at end Dec-17, mainly concentrated in Punjab (87%). The Government of Punjab (GoPb) holds majority stake in BOP (58%), whereas the rest is widely dispersed.

Mr. Naeemuddin Khan is the President of the Bank since Sep-08. 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 term finance certificates (TFC) of amount PKR 2.5bln in CY16 to raise Tier-II capital. This privately placed, rated, unsecured and subordinated issue was raised to comply with State Bank of Pakistan’s (SBP) regulation to maintain the Capital Adequacy Ratio (CAR). The tenor of the instrument is 10 years with the profit is based on 6M-KIBOR plus 95 bps p.a. The issue carries lock-in and loss absorbency clauses, as per Basel III capital regulations.

BoP has issued second TFC in order to support Tier-II capital. The amount of TFC is PKR 4.3bln. The tenor of the instrument will be ten years from the date of the issue (April 2018) whereas the profit is based on 6M-KIBOR plus 125 bps per annum. The TFC is unsecured and subordinated as to the payment of principal and profit to all other indebtedness of the 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.