The Pakistan Credit Rating Agency Limited

Rating Report
Report Contents
1. Rating Analysis
The Bank of Punjab 2. Financial Information
3. Rating Scale
4. Regulatory and Supplementary Disclosure

Rating History
Dissemination Date Long Term Rating Short Term Rating Outlook Action Rating Watch
28-Jun-2024 AA+ A1+ Stable Maintain -
26-Jun-2023 AA+ A1+ Stable Maintain -
18-Jun-2022 AA+ A1+ Stable Maintain -
18-Jun-2021 AA+ A1+ Stable Upgrade -
30-Jun-2020 AA A1+ Stable Maintain -
28-Dec-2019 AA A1+ Stable Maintain -
28-Jun-2019 AA A1+ Stable Maintain -
27-Dec-2018 AA A1+ Stable Maintain -

Rating Rationale and Key Rating Drivers

The Bank of Punjab (BOP) has built a franchise around its name, which itself is a testimony of strong parentage. The parentage
of the bank has provided associated benefits to the institution. It functions as a solid backing in times of need and furnishing
entry into profitable segments, where other institutions are reluctant to enter. The bank has done a remarkable work in the realm
of SMEs and agriculture sectors. The bank is now eyeing foreign funding to fuel the growth. Additionally, a stable, deposit base
is giving strength to the bank. The incumbent management has revamped and strengthened the governance and compliance
structure in place, over the last four years, which is essential for oversight and dynamic operations of the Bank. The leadership is
cognizant of the challenge areas and has a well-designed strategy to address the challenges and steer the bank towards a growth
journey. Customer focus with geographical diversification and expansion are the key elements. At end-Dec23, the deposit base
of the Bank increased by 24% to stand at PKR 1,521bln where deposits remained tilted towards saving. The Banks' net advances
have grown by 37% YoY to stand at PKR 806bln. Consequently, ADR was increased to 53% owing to increased lending to the
public sector. During CY23, the Profit Before Tax of the Bank increased by 15% to stand at PKR 21.2bln attributable to
enhanced non-markup income clocking in at PKR 17.7bln with major contribution from gain on investments and recoveries. The
investment book of the bank inclined to PKR 913bln mainly comprises government securities. A major proportion of the
investment book is now repriced, which would provide advantage to profits, going forward. At end-Dec23, the CAR of the bank
strengthened to 18.4% owing to the successive issuance of ADT-I and Tier-II bonds along with capital retention.

The management, led by sound leadership, is poised to strengthen the profile of the bank and is taking active measures to
overcome the challenges. In this regard, the management is working on diversification in the revenue stream with a focus on
tapping on SMEs, retail segments, and trade business of the country. Moreover, the bank is planning to build global presence
with the establishment of offshore entities.

Disclosure
Name of Rated Entity The Bank of Punjab
Type of Relationship Solicited
Purpose of the Rating Entity Rating
Applicable Criteria Methodology | Correlation Between Long-term & Short-term Rating Scales(Jul-23),Methodology | Financial
Institution Rating(Oct-23),Methodology | Rating Modifiers(Apr-24)
Related Research Sector Study | Commercial Banks(Jun-24)
Rating Analysts Muhammad Usman Ameer | [email protected] | +92-42-35869504

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 Commercial Banks
The Pakistan Credit Rating Agency Limited
Profile

Structure The Bank of Punjab (BoP) was established under the BoP Act 1989 (the Act), as a non-scheduled bank and was subsequently converted into a scheduled bank
in 1994.
Background With its Head Office in Lahore, the Bank operates a network of 815 branches at end-Dec23 (end-Dec22: 780 branches) and employs 13,659 employees at
end-Dec23 (end-Dec22: 13,047).
Operations The bank's principal activities are to provide commercial and Islamic banking services to individuals and institutional clients. BoP entered Islamic Banking
Operations in 2013, under the brand name “Taqwa Islamic Banking”. At end-Dec23 there are 160 (end-Dec22: 140) fully functional Islamic Banking Branches.
Ownership

Ownership Structure The Government of Punjab (GoPb) holds a controlling stake of 57.5% in the Bank of Punjab. The rest of the shareholding is by individuals at
29.6% and institutions at 12.9%.
Stability The ownership structure of the bank is seen as stable as no ownership changes are expected in the future. The majority stake will rest with The Government of
Punjab.
Business Acumen Sponsor's business acumen is considered good as BoP has been achieving milestones by successfully making the right business decisions. Over the last
few years, it has sustained being a profitable institution.
Financial Strength BoP, being one of the flagship entities under the umbrella of the Government of Punjab, willingness to support the Bank in case the need arises is
considered high; also supplemented by access to the capital markets.
Governance

Board Structure The control of the bank vests with a seven-member Board of Directors comprising three non-executive directors, three independent directors, and one
executive director. Three members are representing the Government of Punjab. Mr Zafar Masud – President of BoP is an executive director.
Members’ Profile Members of BoD are also distinguished professionals including seasoned bankers and civil servants. However, owing to the institutional framework of
BoP, the key shareholder can exert influence over the BoD which may potentially compromise its independence.
Board Effectiveness The BoD exercises close monitoring of the management’s policies and the bank’s operations via five sub-committees. Meetings for all these five
committees are held quarterly. The Board members’ attendance and participation are considered good and effective.
Financial Transparency The Audit Committee comprises four members; Mr. Muhammad Mudassir Amray is the chairman. The external auditors – A.F Ferguson & Co.
Chartered Accountants, have expressed an unqualified opinion on the financial statements of the bank for CY23.
Management

Organizational Structure The bank has a lean organizational structure with experienced senior management heading each function and/or unit and relevant segregation of
duties in place.
Management Team Mr. Zafar Masud is the President and CEO of the Bank. He has been associated with reputed international and domestic banks during his career. The
senior management consists of seasoned bankers having diversified experience.
Effectiveness The bank has various committees in place at the management level to oversee its day-to-day operational matters and make decisions to implement the
strategy outlined for it by the board. The committee, responsible for overseeing the operational matters of the bank, including human resources, different lines of business,
compliance, and administration, meets fortnightly to review these areas.
MIS A comprehensive IT security policy has been put in place along with risk mitigation protocols. The bank has successfully implemented an internationally renowned
Oracle-based core banking system ‘Flexcube” and all branches have been migrated to the new CBS.
Risk Management Framework The Risk Management Division (RMD), headed by Chief Risk Officer (CRO) – Mr. Arsalan Muhammad Iqbal manages different facets
of risk including credit, market, operational, liquidity, reputation, and country risk. Heads of Credit Risk Units – Corporate, Commercial, Consumer, Special Assets
Management (SAM), and Agri – report to the head of credit risk, while heads of Operational, Market, and Risk Policy report directly to the CRO.
Business Risk

Industry Dynamics CY23 remained a challenging year for the economy inclusive of a drop in exchange reserves, currency devaluation, and peak inflation. To combat
inflation and curb aggregate demand, the Central Bank maintained a tight monetary policy stance. Despite these challenges, CY23 was a remarkably successful year for
the banking industry. The sector outperformed historical statistics, with two-thirds of net markup income coming from investments in government securities and the
remainder from advances. During the year, Pakistan's banking sector's total assets posted growth of ~30% YoY whilst investments surged by ~42% to PKR ~25.6trln (end-
Dec22: PKR ~18trln). Gross Advances of the sector recorded growth of ~4% to stand at PKR ~13.101trln (end-Dec22: PKR ~12.645trln). Non-performing loans
witnessed an increase of 8.3% YoY to PKR ~881bln (end-Dec22: ~812bln). The CAR averaged at 18.5% (end-Dec22: 15.5%). Looking ahead, with the expected
monetary rate cut, banks are likely to sustain some dilution in profitability by CY24.
Relative Position BOP, a medium-sized bank, secures a good position of 5.4% in the industry as of end-Dec23 (end-Dec22: 5.4%) market share in terms of deposits. The
deposit base of the bank stands at PKR 1,521bln as of end-Dec23 (end-Dec22: PKR 1,227bln).
Revenues During CY23, BOP’s NIMR witnessed an incline of 33% on a YoY basis to stand at PKR 40.946bln (CY22: PKR 30.758bln) primarily attributable to
increased markup earnings amounting to PKR 327.194bln (CY22: PKR 137.168bln). Whereas, the markup expenses increased to stand at PKR 286.248bln (CY22: PKR
106.410bln). The bank’s asset yield is inclined to stand at 20.7% (CY22: 11.7%). The cost of funds increased to 17.2% (CY22: 8.8%). Consequently, Spread inclined to
3.5% (CY22: 2.9%).
Performance During CY23, the non-markup income inclined by 68% YoY to stand at PKR 17.718bln (CY22: PKR 10.576bln), attributable to higher gain on securities
clocking in at PKR 5.25bln (CY22: PKR 343mln) and increased other income clocking in at PKR 4.16bln (CY22: PKR 306mln). The non-markup expenses also grew by
35% to stand at PKR 37.498bln (CY22: PKR 27.705bln). The total provisioning reversals of the bank were recorded at PKR 53mln (CY22: PKR 4.878bln). The net
profitability inclined by 5% to stand at PKR 11.339bln (CY22: PKR 10.834bln).
Sustainability The management envisages growth in the deposit base while bringing granularity to the customer base through further private-sector deposits which will
optimize the cost of funding. Growth in advances is also the focus of the management, wherein the criteria are higher margins and a sustainable risk profile.
Implementation of modern technological tools would help in improving the control regime and bringing efficiency to the operation.
Financial Risk

Credit Risk At end-Dec23, BOP's net advances have grown by 37% YoY to stand at PKR 806.387bln (end-Dec22: PKR 589.581bln). ADR was reported at 53% (end-
Dec22: 48%). NPLs have decreased to stand at PKR 50.880bln (end-Dec22: 51.561bln). Therefore, the infection ratio improved to 6% (end-Dec22: 8.1%) which reflects
positively on asset quality.
Market Risk At end-Dec23, the investment portfolio of the bank has increased by 44% to stand at PKR 900.27bln, excluding debt instruments (end-Dec22: PKR
626.81bln). Government securities constitute 99.1% of total investments (end-Dec22: 98.3%).
Liquidity And Funding At end-Dec23, total deposits increased by 24% to stand at PKR 1,521bln (end-Dec22: PKR 1,227bln). CA and SA proportion rationalized to
19.3% (end-Dec22: 19.6%) and 45.1% (end-Dec22: 47.1%) respectively. The bank’s liquidity, in terms of Liquid Assets-to-Deposits and borrowing ratio, declined to
38.8% (end-Dec22: 53.1%).
Capitalization At end-Dec23, the bank reported CAR of 18.37% (end-Dec22: 13.11%), comprising of Tier I CAR (15.42%), remaining compliant with the minimum
requirement by SBP.

The Bank of Punjab Jun-24

Rating Report www.PACRA.com
 cial Banks
n PKR mln 0 0 0 PKR mln
cy Limited PKR mln
The Bank of Punjab Dec-23 Dec-22 Dec-21 Dec-20
Listed Public Limited 12M 12M 12M 12M

A BALANCE SHEET

1 Total Finances - net 814,124 597,697 499,255 402,885

2 Investments 900,278 625,817 517,084 552,948
3 Other Earning Assets 155,983 76,065 40,207 18,807
4 Non-Earning Assets 340,619 177,985 140,656 117,690
5 Non-Performing Finances-net 5,176 4,326 (251) 3,116
Total Assets 2,216,180 1,481,890 1,196,952 1,095,446
6 Deposits 1,520,854 1,227,339 1,002,955 835,068
7 Borrowings 484,171 98,024 79,112 161,633
8 Other Liabilities (Non-Interest Bearing) 130,401 91,475 60,052 46,484
Total Liabilities 2,135,425 1,416,838 1,142,119 1,043,185
Equity 80,755 65,052 54,833 52,262

B INCOME STATEMENT

1 Mark Up Earned 327,194 137,168 81,651 86,019

2 Mark Up Expensed (286,248) (106,410) (51,775) (62,694)
3 Non Mark Up Income 17,718 10,576 7,904 13,046
Total Income 58,663 41,335 37,780 36,371
4 Non-Mark Up Expenses (37,498) (27,705) (21,014) (17,519)
5 Provisions/Write offs/Reversals 53 4,878 1,642 (6,862)
Pre-Tax Profit 21,218 18,508 18,408 11,989
6 Taxes (9,879) (7,673) (5,968) (5,046)
Profit After Tax 11,339 10,834 12,440 6,944

C RATIO ANALYSIS

1 Performance
Net Mark Up Income / Avg. Assets 2.2% 2.3% 2.6% 2.4%
Non-Mark Up Expenses / Total Income 63.9% 67.0% 55.6% 48.2%
ROE 15.6% 18.1% 23.2% 14.0%
2 Capital Adequacy
Equity / Total Assets (D+E+F) 3.6% 4.4% 4.6% 4.8%
Capital Adequacy Ratio 18.4% 13.1% 12.3% 16.2%
3 Funding & Liquidity
Liquid Assets / (Deposits + Borrowings Net of Repo) 38.8% 53.1% 55.2% 61.2%
(Advances + Net Non-Performing Advances) / Deposits 53.0% 48.0% 48.3% 46.8%
CA Deposits / Deposits 19.3% 19.6% 19.4% 20.3%
SA Deposits / Deposits 45.1% 47.1% 46.5% 47.3%
4 Credit Risk
Non-Performing Advances / Gross Advances 6.0% 8.1% 9.7% 12.9%
Non-Performing Finances-net / Equity 6.4% 6.6% -0.5% 6.0%
 Corporate Rating Criteria
Qualitative Considerations
Criteria – Cross-Sector Qualitative Rating Considerations
Methodology – Asset Manager Rating
Scale
Criteria – Cross-Sector Qualitative Rating Considerations
Methodology – Asset Manager Rating
Cross-Sector Rating
Scale – Credit Rating

Credit Rating
Credit rating reflects forward-looking opinion on credit worthiness of underlying entity or instrument; more specifically it covers relative ability to honor
financial obligations. The primary factor being captured on the rating scale is relative likelihood of default.

Long-term Rating Short-term Rating

Scale Definition Scale Definition
A1+ The highest capacity for timely repayment.
Highest credit quality. Lowest expectation of credit risk. Indicate exceptionally strong
AAA A strong capacity for timely
capacity for timely payment of financial commitments A1
repayment.
AA+ A satisfactory capacity for timely
Very high credit quality. Very low expectation of credit risk. Indicate very strong repayment. This may be susceptible to
AA A2
capacity for timely payment of financial commitments. This capacity is not significantly adverse changes in business,
vulnerable to foreseeable events. economic, or financial conditions.
AA- An adequate capacity for timely repayment.
A3 Such capacity is susceptible to adverse
A+ changes in business, economic, or financial
High credit quality. Low expectation of credit risk. The capacity for timely payment of The capacity for timely repayment is more
A financial commitments is considered strong. This capacity may, nevertheless, be susceptible to adverse changes in business,
vulnerable to changes in circumstances or in economic conditions. A4
economic, or financial conditions. Liquidity
A- may not be sufficient.
BBB+ Short-term Rating
Good credit quality. Currently a low expectation of credit risk. The capacity for timely A1+ A1 A2 A3 A4
BBB payment of financial commitments is considered adequate, but adverse changes in AAA
circumstances and in economic conditions are more likely to impair this capacity. AA+
BBB- AA
BB+ AA-
Moderate risk. Possibility of credit risk developing. There is a possibility of credit risk
A+
developing, particularly as a result of adverse economic or business changes over time;
BB A
however, business or financial alternatives may be available to allow financial

Long-term Rating
commitments to be met. A-
BB- BBB+
B+ BBB
High credit risk. A limited margin of safety remains against credit risk. Financial BBB-
B commitments are currently being met; however, capacity for continued payment is BB+
contingent upon a sustained, favorable business and economic environment. BB
B- BB-
CCC B+
Very high credit risk. Substantial credit risk “CCC” Default is a real possibility.
B
Capacity for meeting financial commitments is solely reliant upon sustained, favorable
CC B-
business or economic developments. “CC” Rating indicates that default of some kind
CCC
appears probable. “C” Ratings signal imminent default.
C CC
C
D Obligations are currently in default. *The correlation shown is indicative and, in certain
cases, may not hold.

Outlook (Stable, Positive, Rating Watch Alerts to the Suspension It is not Withdrawn A rating is Harmonization A
Negative, Developing) Indicates possibility of a rating change possible to update an withdrawn on a) change in rating due to
the potential and direction of a subsequent to, or, in opinion due to lack termination of rating revision in applicable
rating over the intermediate term in anticipation of some material of requisite mandate, b) the debt methodology or
response to trends in economic identifiable event with information. Opinion instrument is underlying scale.
and/or fundamental indeterminable rating should be resumed in redeemed, c) the rating
business/financial conditions. It is implications. But it does not foreseeable future. remains suspended for
not necessarily a precursor to a mean that a rating change is However, if this six months, d) the
rating change. ‘Stable’ outlook inevitable. A watch should be does not happen entity/issuer defaults.,
means a rating is not likely to resolved within foreseeable within six (6) or/and e) PACRA finds
change. ‘Positive’ means it may be future, but may continue if months, the rating it impractical to surveill
raised. ‘Negative’ means it may be underlying circumstances are should be considered the opinion due to lack
lowered. Where the trends have not settled. Rating watch may withdrawn. of requisite
conflicting elements, the outlook accompany rating outlook of information.
may be described as ‘Developing’. the respective opinion.

Surveillance. Surveillance on a publicly disseminated rating opinion is carried out on an ongoing basis till it is formally suspended or withdrawn. A
comprehensive surveillance of rating opinion is carried out at least once every six months. However, a rating opinion may be reviewed in the
intervening period if it is necessitated by any material happening.

Note. This scale is applicable to the following methodology(s): a) Broker Entity Rating e) Holding Company Rating
b) Corporate Rating f) Independent Power Producer Rating
c) Debt Instrument Rating g) Microfinance Institution Rating
d) Financial Institution Rating h) Non-Banking Finance Companies Rating

Disclaimer: PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but
its accuracy or completeness is not guaranteed. PACRA shall owe no liability whatsoever to any loss or damage caused by or resulting from any error
in such information. Contents of PACRA documents may be used, with due care and in the right context, with credit to PACRA. Our reports and
ratings constitute opinions, not recommendations to buy or to sell.
 Regulatory and Supplementary Disclosure
(Credit Rating Companies Regulations,2016)

Rating Team Statements

(1) Rating is just an opinion about the creditworthiness of the entity and does not constitute recommendation to buy, hold or sell any security of the
entity rated or to buy, hold or sell the security rated, as the case may be | Chapter III; 14-3-(x)

2) Conflict of Interest
i. The Rating Team or any of their family members have no interest in this rating | Chapter III; 12-2-(j)
ii. PACRA, the analysts involved in the rating process and members of its rating committee, and their family members, do not have any conflict of
interest relating to the rating done by them | Chapter III; 12-2-(e) & (k)
iii. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)] Explanation: for the purpose of above clause,
the term “family members” shall include only those family members who are dependent on the analyst and members of the rating committee

Restrictions
(3) No director, officer or employee of PACRA communicates the information, acquired by him for use for rating purposes, to any other person except
where required under law to do so. | Chapter III; 10-(5)
(4) PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge
during business relationship with the customer | Chapter III; 10-7-(d)
(5) PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of entity subject to
rating | Chapter III; 10-7-(k)

Conduct of Business
(6) PACRA fulfills its obligations in a fair, efficient, transparent and ethical manner and renders high standards of services in performing its functions
and obligations; | Chapter III; 11-A-(a)
(7) PACRA uses due care in preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable but its
accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verifies or validates information received in the rating
process or in preparing this Rating Report | Clause 11-(A)(p).
(8) PACRA prohibits its employees and analysts from soliciting money, gifts or favors from anyone with whom PACRA conducts business | Chapter III;
11-A-(q)
(9) PACRA ensures before commencement of the rating process that an analyst or employee has not had a recent employment or other significant
business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest; | Chapter III; 11-A-(r)
(10) PACRA maintains principal of integrity in seeking rating business | Chapter III; 11-A-(u)
(11) PACRA promptly investigates, in the event of a misconduct or a breach of the policies, procedures and controls, and takes appropriate steps to
rectify any weaknesses to prevent any recurrence along with suitable punitive action against the responsible employee(s) | Chapter III; 11-B-(m)

Independence & Conflict of interest

(12) PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has
no influence on PACRA´s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity and
independence of its ratings. Our relationship is governed by two distinct mandates i) rating mandate - signed with the entity being rated or issuer of the
debt instrument, and fee mandate - signed with the payer, which can be different from the entity
(13) PACRA does not provide consultancy/advisory services or other services to any of its customers or to any of its customers’ associated companies
and associated undertakings that is being rated or has been rated by it during the preceding three years unless it has adequate mechanism in place
ensuring that provision of such services does not lead to a conflict of interest situation with its rating activities; | Chapter III; 12-2-(d)
(14) PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly
10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA; |
Reference Chapter III; 12-2-(f)
(15) PACRA ensures that the rating assigned to an entity or instrument is not be affected by the existence of a business relationship between PACRA and
the entity or any other party, or the non-existence of such a relationship | Chapter III; 12-2-(i)
(16) PACRA ensures that the analysts or any of their family members shall not buy or sell or engage in any transaction in any security which falls in the
analyst’s area of primary analytical responsibility. This clause shall, however, not be applicable on investment in securities through collective
investment schemes. | Chapter III; 12-2-(l)
(17) PACRA has established policies and procedure governing investments and trading in securities by its employees and for monitoring the same to
prevent insider trading, market manipulation or any other market abuse | Chapter III; 11-B-(g)

Monitoring and review

(18) PACRA monitors all the outstanding ratings continuously and any potential change therein due to any event associated with the issuer, the security
arrangement, the industry etc., is disseminated to the market, immediately and in effective manner, after appropriate consultation with the entity/issuer; |
Chapter III | 17-(a)
(19) PACRA reviews all the outstanding ratings periodically, on annual basis; Provided that public dissemination of annual review and, in an instance of
change in rating will be made; | Chapter III | 17-(b)
(20) PACRA initiates immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in
downgrading of the rating; | Chapter III | 17-(c)
(21) PACRA engages with the issuer and the debt securities trustee, to remain updated on all information pertaining to the rating of the
entity/instrument;| Chapter III | 17-(d)
Probability of Default
(22) PACRA´s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e., probability).
PACRA´s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be
obtained from PACRA´s Transition Study available at our website. (www.pacra.com). However, actual transition of rating may not follow the pattern
observed in the past; | Chapter III | 14-3(f)(vii)
Proprietary Information
(23) All information contained herein is considered proprietary by PACRA. Hence, none of the information in this document can be copied or, otherwise
reproduced, stored or disseminated in whole or in part in any form or by any means whatsoever by any person without PACRA’s prior written consent

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