The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Maintains Rating of The Bank of Punjab | TFC I

Rating Type Debt Instrument
(27-Dec-18 )
(27-Jun-18 )
Action Maintain Maintain
Long Term AA- AA-
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect improved risk profile of Bank of Punjab (BoP) with an appreciable enhancement in profitability and asset quality over the last few years which supplemented the equity base. During the current year, the bank has recorded commendable uptick in revenue base – both interest earned and income from fee, commission. Hence, an uptick witnessed in asset yield. NPLs inched down; trend needs to continue in future. Customer deposits – part of funding base – witnessed increase; contribution of CA deposits declined. During 9MCY18, the bank recorded sizable improvement in profitability which was further supplemented by reversal in provisioning. The bank's Capital Adequacy Ratio (CAR) clocked in at 13.29% for the period ending-Sep18. Going forward, 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 545 branches as at end Sep-18, mainly concentrated in Punjab (85%). The Government of Punjab (GoPb) holds majority stake in BOP (58%), whereas the rest is widely dispersed.
Mr. Naeemuddin Khan, President of the Bank since Sep-08, has lately resigned. Mr. Khalid Tirmizey, former deputy CEO, has become Acting-CEO in Dec-18. 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 100 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.