The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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PACRA Upgrades Rating of The Bank of Punjab | TFC I | Dec-16

Rating Type Debt Instrument
(25-Jun-21 )
(30-Jun-20 )
Action Upgrade Maintain
Long Term AA AA-
Short Term - -
Outlook Stable Stable
Rating Watch - -

The Bank of Punjab has built a franchise around its name, which itself is a reflection of strong parentage. The sponsor has been instrumental in the revival of the Bank and now the institution stands on its own support. It took a long period which witnessed concerted efforts by the management duly backed by the sponsors' support to reinvigorate the Bank. The incumbent management, under the new leadership, has revamped and strengthened the governance and compliance structure in place which is essential for oversight and dynamic operations of the Bank. The areas of focus envision three phases (control, consolidation & growth), which help lead the bank from an augmented control environment to a growth arena. Customer focus and geographical diversification and expansion are the key elements. The Bank grew its customer's deposit's base by 21% to stand at PKR 835bln - higher than the industry's growth. The system share of the Bank has taken a positive contribution from the growth, which would lead the bank towards being classified as a large bank. Asset quality remains a challenge where a hike in NPLs during the year has led to increased provisioning expense being recorded. However, on a prudence basis, subjective classification and general provisioning were done to ensure that asset quality remains unimpaired going forth. The bank's Capital Adequacy Ratio (CAR) clocked in at 16.2% as at end-Dec20 (end-Dec19: 14.8%), providing BOP with a healthy cushion to expand its advances' book in line with its stated strategy, whereby the growth in risk assets will be covered through insurance and first-loss guarantees wherever available. COVID-19 is an ongoing challenge. The proactive measures taken by the regulators and other concerning bodies, alongside the measures taken by the banks, have mitigated the potential damages much anticipated from this pandemic. As a result, the banking industry remained protected and in fact posted record profits.
The ratings are dependent on the financial risk profile of the bank, mainly emanating from the 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 636 branches as at end Dec-20, mainly concentrated in Punjab. The Government of Punjab (GoPb) holds the 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 are critical for the successful execution of the envisaged business plan.

About the Instrument
BoP issued first rated, privately placed, unsecured and subordinated TFC of the amount PKR 2.5bln in Dec-16. The purpose of the instrument was to raise Tier-II capital to comply with the State Bank of Pakistan’s regulation to maintain the capital adequacy ratio. The tenor of the instrument is 10 years. The profit is based on 6M-KIBOR plus 100 bps p.a and is paid semi-annually in arrears on the outstanding principal amount. This TFC is unsecured and subordinate as to the payment of principal and profit to all other indebtedness of the instrument 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.