Final PR
The Pakistan Credit Rating Agency Limited

Jhangeer Hanif

Muneeb Rashid

Applicable Criteria

  • Correlation between long-term and short-term rating scale (Jun 17) [View]
  • Methodology | Bank Rating (Jun 17) [View]

Related Research

  • Sector Study | Commercial Bank (Jun 17) [View]
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PACRA Maintains Entity Ratings of National Bank of Pakistan
 Rating Type Entity
 Action Maintain Maintain
 Long Term AAA AAA
 Short Term A1+ A1+
 Outlook Stable Stable
 Rating Watch - -

The ratings are driven by strong ownership structure (Government of Pakistan (GoP) holds majority stake). The bank’s strong financial risk profile, characterized by firm risk absorption capacity, provides strength to the ratings. NBP’s renowned franchise along with extended outreach aids the bank in deposit mobilization; public-private deposit mix remained intact. During CY16, the bank’s deposit growth outpaced the industry. This helped in fortifying NBP’s system share in the country’s deposits. Time deposits have a high proportion in NBP’s deposit; hence its funding cost reflects room for improvement. Bank withstood pressure on NIMR in 2016, though with PIBs maturity, this was inevitable. High cost structure of the bank is limiting profitability. As against historical trend, NBP’s asset quality improved during CY16, though it is still considered weak as compared to peer banks. 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 seems a challenge. With focused efforts, NBP has managed to bring volumes in Islamic banking (Aitemaad) though limited; it is targeted to contribute towards growth.

The ratings are dependent upon the management’s ability maintain relative standing of the bank in the industry in all key parameters. The Senate passed Depositor Protection Act in 2016. 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 bank has filed a review petition against the Supreme Court judgement in a case related to pensionary benefits to retired employees. The resulting liability of PKR 47.7bln has not been accounted for. This, if materialized, would cause significant dilution to the risk absorption capacity of the bank.
About the Entity
National Bank of Pakistan - the largest public sector commercial bank - operates with a network of over 1,494 branches. NBP maintains a total customer deposit share of 12.5% at end-Sep17. NBP is majority (~75%) owned by GoP, through State Bank of Pakistan (SBP). The bank acts as an agent of SBP and manages treasury operations for GoP.

NBP's eight member GoP nominated board includes the President, one independent director, while others are non-executives. Mr. Saeed Ahmad assumed the seat of President and CEO in Mar-17. The President is a seasoned banker having over three decades of experience of domestic and international markets. He is supported by an experienced team.
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.