PACRA Maintains Rating of The Bank of Punjab | TFC I | Tier-II
|Rating Type||Debt Instrument|
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. Last few years are reflective of this, during 9MCY19, the bank has recorded commendable uptick in revenue base – both interest earned and income from fee and commission. The former is largely attributable to hike in key policy rate as advances witnessed marginal growth. Hence, a rise was witnessed in asset yield. Resultantly, spread inched up to 5.1% (end-Dec18: 4.6%). Although, the bank performed well, but on the other hand, hike in NPLs led to net provisioning expense being recorded. On the funding side, saving deposits witnessed significant jump. The concentration of government and public sector deposits remain high. The bank's Capital Adequacy Ratio (CAR) clocked in at 14.66% as at end-Sep19, which is a healthy sign for BoP. 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.
The Bank of Punjab, established under the BOP Act 1989, is listed on Pakistan Stock Exchange (PSX). The bank operates a vast network of 611 branches as at end Sep-19, mainly concentrated in Punjab. The Government of Punjab (GoPb) holds majority stake in BOP (57%), whereas the rest is widely dispersed.
Mr. Khalid Tirmizey, former deputy CEO, has been appointed as Acting President and CEO of The Bank of Punjab 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.
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.
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.
Both TFC's are 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 issues carry lock-in and loss absorbency clauses, as per Basel III capital regulations.