PACRA Assigns Preliminary Rating of The Bank of Punjab | Tier 2 Capital TFC | PKR 10bln| TBI
The Bank of Punjab has built a franchise around its name, which itself is a reflection of strong parentage. The bank enjoys a respectable position in its peer universe, also reflected by its system
share. The Bank grew its deposit base by 22% to stand at PKR 1,227bln - higher than the industry's growth where deposits remained tilted towards saving. 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. However, the expensive funding avenues pose a challenge which is an area of focus for the current management of the bank. During CY22, the Bank maintained its PBT equal to CY21, taking benefit form the reversals. However, PAT declined by 13% to stand at PKR 10.8bln on account of the difference in taxation rate (CY21: PKR 12.4bln). Coverage of non-performing loans has declined YoY, attributed to the benefit of collateral. . At end-Mar23, the equity base is affected by a deficit in the investments. The mark-to-market losses of the investment book have caused a decrease in the equity base of the bank. Consequently, the capital adequacy ratio of the bank weakened to 11.7% (12.91% including advance subscription money for Tier-II Capital), which is expected to improve significantly at the end Jun'23, as projected by the management. For this, the prudent management of CAR remains essential. The risk absorption capacity of the bank is being augmented by a successive issuance of ADT-I and Tier-II bonds. PACRA has noted express intention of the management to augment the CAR with retained earnings, going forward.
The ratings are dependent on the financial risk profile of the bank, mainly emanating from volumetric increases in core operations. Any weakening in asset quality will in turn put pressure on the bank's profitability and risk absorption capacity. Going forward, ample management of the CAR above the regulatory threshold remains necessary.
The Bank of Punjab, established under the BOP Act 1989, is listed on Pakistan Stock Exchange (PSX). The bank operates a vast network of 780 branches as of the end-Mar23, mainly concentrated in Punjab. The Government of Punjab (GoPb) holds a majority stake in BOP (57%), whereas the rest is widely dispersed. Mr. Zafar Masud is the President & CEO of the bank. 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.
BOP is in process to issue an unsecured, subsequently listed, subordinated and rated tier 2 capital term finance certificates of the expected amount PKR 10bln (inclusive of green shoe option of up to PKR 2.5bln) to contribute towards BOP's Tier II Capital. The funds raised are planned to be utilized in the Bank's business operations as permitted. The instrument is tenured up to 10 years of issue date. The expected profit rate is 6M-KIBOR plus 125bps p.a. and payable semiannually in arrears on the outstanding principal. Neither profit nor principal will be payable in respect of TFC, if such payment will result in a shortfall in the bank’s MCR or CAR. The bank may call the TFCs, with prior approval of SBP, after five years from the date of issue.