Analyst
Muhammad Usman Ameer
usman.ameer@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA affirms the Preliminary Rating of The Bank of Punjab | Tier 2 Capital TFC | PKR 10bln | TBI
Rating Type | Debt Instrument | |
Current (29-Dec-23 ) |
Previous (19-Jul-23 ) |
|
Action | Preliminary | Preliminary |
Long Term | AA | AA |
Short Term | - | - |
Outlook | Stable | Stable |
Rating Watch | - | - |
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 is in the process of issuing 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. The instrument is expected to be issued by end-Mar24.