PACRA Upgrades the Entity Ratings of Bank of Khyber

The rating upgrade reflects BoK's ('Bok' or 'the Bank') strengthened financial profile, underpinned by improved profitability, enhanced capitalization, and sustained deposit franchise growth, alongside management's demonstrated ability to execute strategic initiatives. The Bank's ownership structure lends support to the ratings. A defining milestone was initiation of the process for full Islamic banking conversion, with 78% of the network already Shariah-compliant, which is expected to further consolidate BoK's competitive positioning over the medium term. During CY25, the Bank operated in a declining interest rate environment while advancing its multi-faceted transformation strategy. BOK's deposits grew by 36.2% to PKR 378.1bln (CY24: PKR 277.6bln), reflecting management's continued focus on deposit mobilization, with a substantial increase in Islamic deposits driving the growth in line with the Bank's conversion strategy. Total assets reduced by 5.1% to PKR 453.3bln (CY24: PKR 477.6bln), mainly on account of a decline in investments and advances, while borrowings reduced sharply to PKR 35.7bln (CY24: PKR 133.5bln) as the Bank optimized its funding mix on the back of stronger deposit mobilization. The Bank continued to expand its distribution and Islamic banking infrastructure; as of CY25, BOK's branch network increased to 254 branches (CY24: 246 branches), of which 199 now operate as Islamic banking branches (CY24: 131), supplemented by 55 Islamic banking windows, following the conversion of 59 conventional branches during the year. During the year, the Bank also launched its physical Mastercard Debit Card and its home remittance brand "BOK KorPay," reinforcing its digital transaction and remittance infrastructure. The Bank's net markup income increased by a sizeable 15.2% to PKR 19.0bln (CY24: PKR 16.5bln), reflective of effective portfolio management, while non-markup income increased substantially to PKR 4.1bln (CY24: PKR 1.8bln), largely on account of a gain on securities of PKR 2.3bln (CY24: PKR 0.2bln) realized on the bond portfolio in view of the prevailing interest rate scenario. Advances (net) reduced by 13.7% to PKR 126.7bln (CY24: PKR 146.9bln), with the Advances-to-Deposits Ratio moderating to 36.7% (CY24: 57.5%), reflecting strategic portfolio reprising following the reversal of ADR-linked tax incentives, a trend observed across the banking industry, compounded by the sharp deposit growth during the year. Asset quality improved, with non-performing loans reducing to PKR 12.5bln (CY24: PKR 13.3bln) on the back of continued recovery efforts, while the coverage ratio stood at approximately 86% (CY24: 86%). Profitability improved markedly, with profit before tax increasing by 51.0% to PKR 12.3bln (CY24: PKR 8.1bln) and profit after tax increasing by 60.9% to PKR 5.8bln (CY24: PKR 3.6bln), supported by a net reversal in credit loss allowance/provisions of PKR 881mln (CY24: reversal of PKR 426mln) amid improved recoveries. Capitalization remains an important rating consideration; the Capital Adequacy Ratio improved to 20.15% (CY24: 17.81%), comfortably above the regulatory requirement of 11.50%, while the Common Equity Tier-1 ratio strengthened to 18.31% (CY24: 15.67%). The Liquidity Coverage Ratio also strengthened to 233.18% (CY24: 208.88%), reflecting a strong liquidity buffer. Subsequent to year-end, the Bank incorporated BOK Currency Exchange Company (Private) Limited, injecting PKR 1bln as paid-up capital, with the exchange company having received in-principal SBP approval in February 2026, a step expected to diversify the Bank's revenue streams going forward.
The ratings remain dependent upon BOK's ability to sustain its improved profitability, manage asset quality through the ongoing balance sheet realignment, and maintain its capitalization and liquidity buffers as it progresses through its Islamic conversion process. Any significant deterioration in these indicators may impact the assigned ratings.

About the Entity
Established in 1991 under the Bank of Khyber Act, BoK attained scheduled bank status in 1994. The Bank remains majority owned by the Government of KPK (70.2%), with Ismail Industries Limited holding 24.4% stake. The Bank operates under the stewardship of Mr. Islam Zaib, Chairperson, and Mr. Hassan Raza (CEO), supported by an experienced management team.