PACRA Upgrades the Ratings of The Bank of Punjab | TFC II | April-18

The Bank of Punjab's ("BoP" or the "Bank") rating upgrade rests on two pillars: a markedly strengthened standalone credit profile and the Bank's increasingly indispensable role in the Government of Punjab's (GoPb) broader economic and development program. This stems from the fact that the Bank is majority-owned and controlled by the provincial government. BoP crossed the PKR 2trln deposit mark by end-2025. While public sector deposits remain a major contributor, private sector deposits have also grown substantially, comfortably surpassing PKR 1trln, reflecting genuine franchise depth and a broadening retail and commercial relationship base. Current account deposits have likewise expanded, while the revised pricing structure has meaningfully reduced the cost of funds, enabling the Bank to avoid sector-wide margin compression and post expanding net interest margins and improving core profitability. A central driver of the upgrade is BoP's deepening integration with the GoPb's economic development initiatives. This relationship is reflected in three major financing programs that are reinforcing the Bank's franchise depth and diversifying its earning asset base. The housing finance initiative (Apni Chhat Apna Ghar) has strengthened the Bank's position in retail mortgage lending. In agriculture, the Kissan Card and Livestock Card schemes have expanded financial inclusion and enhanced the Bank's presence in a strategically important segment through a technology-driven delivery model. Similarly, the Asaan Karobar Finance Scheme has significantly strengthened the Bank's SME franchise through the fully digital Asaan Karobar Card. Complementing these structural improvements, BoP's financial performance in CY25 reflects stronger earnings generation and balance sheet resilience. Gross advances recorded healthy growth, supported by deployment into higher-yielding assets, while equity strengthened further. Net interest income increased significantly, driven by favorable liability repricing and an improved deposit mix. Operating efficiency also improved, supported by automation, digital transformation, and process optimization initiatives. Going forward, the management has devised a strategy to further strengthen the Bank's overall performance, including its trade business, while enhancing its footprint across the country's financial sector. The Bank has also implemented a capital management policy to maintain a strong capital cushion above the regulatory requirement.
Continued growth in key performance parameters is essential for future ratings. A seamless governance framework and independence in decision-making will be essential. Ongoing improvements in earnings diversification, in trade and digital advancements, is important.

About the Entity
The Bank of Punjab, established under the BOP Act 1989, is listed on the Pakistan Stock Exchange (PSX). The GoPb holds a majority stake of 57.5%, while the remaining shareholding is widely dispersed. The Bank is governed by an eight-member Board of Directors. Mr. Zafar Masud, a renowned banker and current Chairman of the Pakistan Banks Association, serves as the President & CEO of the Bank.

About the Instrument
The Bank issued its second rated, privately placed, unsecured and subordinated TFC ("TFCs" or the "Instrument") of PKR 4.3bln on Apr-18. The amount raised contributed towards BOP’s Tier II Capital in accordance with SBP guidelines on capital adequacy. The tenor of the instrument is 10 years with profit paid at the rate of 6MK+1.25% on the outstanding amount. 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. The TFCs shall, if directed by the SBP, be fully and permanently converted into ordinary shares and/or have them immediately written off upon the PONV Trigger Event.