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
(27-Dec-19 )
(28-Jun-19 )
Action Maintain Maintain
Long Term AAA AAA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch Yes Yes

The ratings reflect the formidable strength of the Bank in the domestic commercial banking industry. The Bank’s strong financial risk profile, characterized by firm risk absorption capacity and systemic importance provides strength to the ratings. NBP’s renowned domestic franchise along with extended outreach and high customer confidence aids the bank in sustaining its position. NBP fortified its position as the second-largest bank in the country in terms of advances, investments as well as deposits. During 9MCY19, NBP's performance remained better than its peers in the country. Additionally, CASA mix improved; especially the CA side of it; benefiting in the spreads. However, the high administration cost and a higher taxation charge of 44% is limiting profitability. There was deterioration in the asset quality as NBP booked PKR 19.13bln of NPLs. Although, the Bank has developed a system for early warning pertaining to the risks of NPLs, wherein some refinement may also be beneficial. 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 driven by strong ownership structure (Government of Pakistan (GoP) holds majority stake) also.
The ratings are dependent upon the management’s ability to maintain the 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 pension benefits to retired employees has filed a review petition against the Supreme Court judgment and has also moved an application for the constitution of the larger bench which has been accepted.

About the Entity
National Bank of Pakistan - the largest public sector commercial bank - operates with a network of over 1,508 branches in Pakistan and 21 overseas branches at end-Sep19. NBP maintains a total customer deposit share of ~12.2% at end-Sep19. NBP is majority (~75.6%) 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 nine members GoP nominated board includes the President, one independent director, while others are non-executives. The Ministry of Finance appointed Mr Arif Usmani, as President/Chief Executive Officer of the National Bank of Pakistan.

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.