The Pakistan Credit Rating Agency Limited
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Muhammad Noor Ul Haq

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PACRA Maintains Entity Ratings of National Bank of Pakistan

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

The ratings are driven by strong ownership structure (Government of Pakistan (GoP) holds majority stake). The bank’s strong financial risk profile, characterized by firm risk absorption capacity, provides strength to the ratings. NBP’s renowned franchise along with extended outreach aids the bank in deposit mobilization; public-private deposit mix remained intact. NBP fortified its position as the second largest bank in the country in terms of customer deposits. During CY17, the bank’s deposits growth was sluggish as the management embarked upon a strategy to shed high cost deposits. This yielded results as CASA mix improved; optimizing cost of funding. Bank withstood pressure on NIMR in 2017, though with PIBs maturity, this was inevitable. High cost structure of the bank is limiting profitability. As against historical trend, NBP’s asset quality improved during CY17, though it is still considered weak as compared to peer banks. Overseas operations and domestic private credit are key contributors to overall infection. Thus strengthening of related risk management systems is important. Going forward, the bank is keen to strengthen its lending portfolio; entering into profitable avenues seems a challenge. With focused efforts, NBP has managed to bring volumes in Islamic banking (Aitemaad) though limited; it is targeted to contribute towards growth.

The ratings are dependent upon the management’s ability maintain relative standing of the bank in the industry in all key parameters. Banks (Nationalization) Act, 1974 (clause 4 of section 5) provides for the safety of all deposits in the banks. Depositor Protection Act 2016 (clause 39) has removed the protection clauses of the referred Act. Which law is to prevail, should any dispute arise, is a legal matter. Moreover, the bank in a case related to pensioner benefits to retired employees has filed a review petition against the Supreme Court judgment and has also moved an application for constitution of larger bench which has been accepted.

About the Entity
National Bank of Pakist an - the largest public sector commercial bank - operates with a network of over 1,498 branches. NBP maintains a total customer deposit share of ~12% at end-Dec17. NBP is majority (~75%) owned by GoP, through State Bank of Pakistan (SBP). The bank acts as an agent of SBP and manages treasury operations for GoP.

NBP's seven member GoP nominated board includes the President, one independent director, while others are non-executives. Mr. Saeed Ahmad assumed the seat of President and CEO in Mar-17. The President is a seasoned banker having over three decades of experience of domestic and international markets. He is supported by an experienced team.

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.