The Pakistan Credit Rating Agency Limited
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Abdul Wahab

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PACRA Maintains Rating of The Bank of Punjab | TFC I | Tier-II

Rating Type Debt Instrument
(30-Jun-20 )
(28-Dec-19 )
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 CY19, the bank has recorded commendable uptick in revenue base – interest earned. Largely attributable to hike in key policy rate as advances witnessed marginal growth slightly improved non-mark up income supplemented the profitability. Hence, a rise was witnessed in asset yield. There is significant dilution in the bank's net interest and operating margins during 1QCY20. Growth in advances was subdued when compared with the medium industry average growth of 3.7%. Hike in NPLs led to net provisioning expense being recorded; maintaining asset quality intact remains essential. The Bank grew its customers deposit base higher than the sector’s growth, with particular importance to saving deposit. The concentration of government and public sector deposits remain high. The bank's Capital Adequacy Ratio (CAR) clocked in at 14.8% as at end-Dec19 (end-Dec18: 13.17%), which is a healthy sign for BoP. Covid-19 has posed challenges to the banking sector, as almost all segments of the economy, worldwide and domestically, are getting negatively impacted. The ramifications would continue to unfold, warranting vigilance and timely actions where needed.
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. Any weakening in asset quality will in turn put pressure on the bank's profitability and risk absorption capacity

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 624 branches as at end Dec-19, mainly concentrated in Punjab. The Government of Punjab (GoPb) holds majority stake in BOP (57%), whereas the rest is widely dispersed.
The bank’s President & CEO – Mr. Zafar Masud was appointed as President & CEO by the GoPb on 17th March, 2020 and assumed the charge on 16th April, 2020. 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.
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.

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.