The Pakistan Credit Rating Agency Limited
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Faraan Taimoor

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PACRA Maintains Ratings of The Bank of Punjab

Rating Type Debt Instrument
Action Maintain Initial
Long Term AA- AA-
Short Term - -
Outlook Stable Stable
Rating Watch - -

The rating reflects the improved risk profile of BOP. The bank's capitalization and hence, risk absorption capacity has witnessed sizeable uptick. Capital Adequacy Ratio (CAR) of the bank clocks in at 12.28% at end – Dec 16. There has been an appreciable improvement in the bank's profitability, over the years, on the back of improved interest income and capital gains, supplementing its equity base. The bank witnessed reduction in the non-performing loans inherited by the current management, though further recovery is taking time. Moreover, continued support from the sponsors - the Government of Punjab (GoPb) - provides requisite fiscal space; fresh capital injection and Letters of Comfort (LOCs) against provisioning for certain infected exposures are valid till 2018. Association with GoPb has benefited the bank also in terms of a sustainable deposit base. The bank is in process of raising capital through right issue. This, along with projected profits, would provide cushion against LOC’s. The bank envisages growth in advances wherein the criteria is higher margins with sustained risk profile. Meanwhile, expansion in deposit base with low cost focus, while attracting a wide customer range, is on the cards.

The ratings are dependent on the financial risk profile of the bank, mainly emanating from sustenance of capital adequacy and continued healthy profitability trend inline with the management's plans. Meanwhile, improvement in asset quality and upholding better governance standards remain imperative.

About the Entity
The Bank of Punjab, established under the BOP Act 1989, is listed on Pakistan Stock Exchange (PSX). The bank operates a vast network of 453 branches, mainly concentrated in Punjab (87%). The Government of Punjab (GoPb) holds majority stake in BOP (58%), whereas the rest is widely dispersed.

Mr. Naeemuddin Khan, the President of the Bank since Sep-08, has four decades of diversified banking experience and has been associated with reputed international and domestic banks during his career. The senior management consists of seasoned bankers. The current team has played a pivotal role in the bank's revival; their continuity and cohesiveness is critical for successful execution of the envisaged business plan

About the Instrument
At end-Mar17, BOP has one unlisted TFC of PKR 2,500mln. The tenor of the instrument is 10 years from the date of issue. Profit is based on 6M-KIBOR plus 100 bps p.a . The issue carries lock-in and loss absorbency clauses, as per Basel III capital regulations and is callable after a period of five years.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.