PACRA Assigns Initial Rating to The Bank of Punjab | Additional Tier 1 Capital TFC | PKR 3.95bln | Feb-24

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-Dec23, the Bank grew its deposit base by 24% to stand at PKR 1,521bln (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 CY23, the net profitability of the bank inclined to PKR 11.3bln (CY22: PKR 10.8bln) attributable to enhanced non-markup income clocking in at PKR 17.7bln (CY22: PKR 10.6bln). The expensive funding cost poses a challenge which is an area of focus for the current management of the bank. At end-Dec23, the gross performing advances of the bank were recorded at PKR 798.6bln (end-Dec22: PKR 582.8bln) indicating a growth of 37% during the period. Consequently, the Bank’s ADR witnessed a jump on a comparative scale. The management of associated credit risk in prevailing economic conditions is crucial for maintaining asset quality. On the other hand, the capital adequacy ratio of the bank inclined to 18.37% (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-Dec23, the bank operates a vast network of 815 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 has issued unsecured, subsequently listed, subordinated, perpetual, rated, and non-cumulative in the nature of additional tier I capital term finance certificates of PKR 3.95bln to contribute towards BOP's Tier I Capital. The funds raised are planned to be utilized in the Bank's business operations as permitted. The instrument is perpetual. The profit rate is 6M-KIBOR plus 200bps 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 TFCs shall, if directed by the SBP, be fully and permanently converted into ordinary shares and/or be immediately written off upon the Point of Non-Viability Trigger Event, subject to a cap of 1,123mln shares. The bank may call the TFCs, with prior approval of SBP, after five years from the date of issue. The instrument has been issued on February 29, 2024.