Analyst
Sehar Fatima
sehar.fatima@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
PACRA Maintains Entity Ratings of The Bank of Punjab
Rating Type | Entity | |
Current (26-Jun-23 ) |
Previous (18-Jun-22 ) |
|
Action | Maintain | Maintain |
Long Term | AA+ | AA+ |
Short Term | A1+ | A1+ |
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 bank enjoys a respectable position in its peer universe, also reflected by its system share. The parentage of the bank has provided associated benefits to the institution. The management, led by sound leadership, is poised to strengthen the profile of the bank. The incumbent management has revamped and strengthened the governance and compliance structure in place, over the last three years, which is essential for oversight and dynamic operations of the Bank. The leadership is cognizant of the challenge areas and has a well-designed strategy to address the challenges and steer the bank towards a growth journey. Customer focus and geographical diversification and expansion are the key elements. 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 from 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). The management has represented that future profitability is going to take benefit from asset repricing among other things. Asset quality improved along with growth in advances. Coverage of non-performing loans has declined YoY, attributed to the benefit of collateral. The investment book mainly comprises government securities. 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 by end-Jun23 by a 2% to 3% margin, 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. The parental association has again benefited the bank by way of raising money from investors. During 1QFY23, the spread of the bank remained under pressure due to gaps in the durations of liabilities and assets of the Bank.
The ratings are dependent on the financial risk profile of the bank, mainly emanating from volumetric increases in core operations and continued healthy profitability trends 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. Going forward, ample management of the CAR above the regulatory threshold remains necessary.
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 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 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.