PACRA Maintains the Rating of The Bank of Punjab | Tier 2 | TFC-III | Apr-23

The Bank of Punjab has built a franchise around its name, which itself is a testimony of strong parentage. The bank enjoys a respectable position in its peer universe, also reflected by its system share. At end-Sept23, the Bank grew its deposit base by 14% to stand at PKR 1,393bln (end-Dec22: PKR 1,227bln) - where deposits remained tilted towards savings. 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. During 9MCY23, the bank reported a net profit of PKR 5.98bln (9MCY22: PKR 7.59bln) due to lower profitability after operational expenses and provisioning charge. The expensive funding cost pose a challenge which is an area of focus for the current management of the bank. At end-Sept23, the gross performing advances of the bank were recorded at PKR 858bln (end-Dec22: PKR 583bln) indicating a growth of 47% during the period. Consequently, the Bank’s ADR witnessed a significant jump on a comparative scale. The management of associated credit risk in prevailing economic conditions is crucial for maintaining the asset quality. On the other hand, the capital adequacy ratio of the bank inclined to 17.08% (end-Dec22: 13.11%) attributable to a successive issuance of ADT-I and Tier-II bonds. The retention of profits for boosting the CAR is essential.
The ratings are dependent on the financial risk profile of the bank, mainly emanating from effective cost structure and volumetric increase in core profitability. 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 the Pakistan Stock Exchange (PSX). At end-Sept23, the bank operates a vast network of 780 branches, 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 and 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.

About the Instrument
The Bank of Punjab issued its third rated, privately placed, unsecured, and subordinated TFC of the amount PKR 7bln in April 2023. 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. The profit is based on 6MK+ 1.25% and is paid semi-annually in arrears on the outstanding principal 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 (partially or in full) upon the PONV Trigger Event. The bank has paid the first principal and profit payment due on Oct 17, 2023.