The Pakistan Credit Rating Agency Limited
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Faraan Taimoor

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PACRA Assigns Preliminary Rating to TFC II of The Bank of Punjab

Rating Type Debt Instrument
Action Preliminary
Long Term AA-
Short Term -
Outlook -
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 12.6% at June – 17. 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 and capital injection. The bank has raised further capital through right issue. This, along with projected profits, provides due cushion against uncovered NPL’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 rating is 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 465 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.

About the Instrument
The tenor of the instrument is 10 years from the date of issue. Profit is based on 6M-KIBOR plus 95 bps p.a . The issue carries lock-in and loss absorbency clauses, as per Basel III capital regulations. Although regulatory benchmark for CAR is increasing, given the bank’s past performance, future projections and dividend payout pattern, cushion to lock- in and loss absorbency clause is expected to remain comfortable.

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.