Lahore, June 30, 2016 (PPI-OT):The Pakistan Credit Rating Agency Limited (PACRA) has maintained the long-term and short-term entity ratings of National Bank of Pakistan (NBP) at ‘AAA’ (Triple AAA) and ‘A1+’ (Single A one Plus) respectively. These ratings denote the lowest expectation of credit risk emanating from an exceptionally strong capacity for timely payment of financial commitments.
The ratings reflect NBP’s strong ownership structure (Government of Pakistan (GoP) holds major stake) and also a significant contribution (37% at end-Dec15) in the bank’s deposit base. NBP maintains a strong financial risk profile, characterized by firm risk absorption capacity and healthy liquidity. The bank’s diversified deposit base benefits from its strong franchise and extended outreach, particularly in remote areas. Lately, the bank has enhanced the pace of its deposit growth, which was little behind the peers in recent years. This has helped in holding deposits. A focussed strategy remains important to manage spreads, in turn, earning profile of the bank.
During CY15, asset mix changed in favour of government securities with slight decline in the advances book. Meanwhile, capital gains on government securities – an outcome of interest rate easing – boasted the bottom-line. However, asset quality remained the key challenge as NPLs accretion continued to impact the core performance. Overseas operations and domestic private credit are key contributors to overall infection. Thus strengthening of related risk management systems is important. Going forward, the bank is keen to strengthen its lending portfolio; entering into profitable avenues may pose a challenge. With focused efforts, NBP has managed to bring volumes in Islamic banking (Aitemaad) though limited; it is targeted to contribute towards growth.
In a recent development, the Senate has passed Depositor Protection Act. Accordingly, Depositor Protection Corporation (DPC) would be established as a wholly owned subsidiary of SBP. This is to provide protection to small depositors and maintain trust in financial system. Once implemented, protection available to NBP depositors under the Banks (Nationalization) Act, 1974 (clause 4 of section 5) would be removed.
The ratings are dependent on the bank’s ability to hold its existing position in the banking sector while remaining abreast with changing operating environment. At the same time, maintaining cost structure at current level whilst improving on the asset quality is considered important. Given public sector banking institution, upholding a strong governance framework is critical; any deterioration may negatively impact the ratings.
For more information, contact:
Hammad Rashid
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com