Press Release

JCR-VIS reaffirms ratings of National Bank of Pakistan at AAA/A-1+

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Karachi, June 30, 2014: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of National Bank of Pakistan (NBP) at ‘AAA/A-1+’ (Triple A/A-One Plus) with ‘Stable’ Outlook.

As the largest public sector bank in the country, NBP commands an important position in the local banking sector as also reflected in sizeable market share in deposits which stood at 13.3% at year-end 2013. Liquidity profile of the bank is considered adequate with sizeable liquid assets carried in relation to deposits and borrowing. Capital Adequacy Ratio of the bank was reported at 15.24% at year-end 2013. The assigned ratings are also driven by NBP’s ownership structure with majority shares held by the Government of Pakistan (GoP). Moreover, security of deposits is guaranteed under the Banks’ Nationalization Act. The ratings also take into account NBP’s role in handling treasury transactions for the GoP as an agent to the State Bank of Pakistan (SBP).

On the asset side, some decline was observed in the advances portfolio due to repayment of energy sector loans on settlement of circular debt in 2013. As the largest public sector bank, NBP has been compelled to take exposure against state-owned enterprises (SOEs). With some of these companies under financial stress, NBP experienced delays in repayments which have exposed the bank to economic losses. Asset quality has also weakened on account of sizeable non-performance in one of the overseas operations. Enhanced controls have been put in place for monitoring of overseas operations with a senior resource at the bank designated to expedite recoveries. Meanwhile, healthy growth has been witnessed in the bank’s consumer portfolio which now represents over one fifth of the loan book. Given the product structures, infection for the segment has been recorded well below industry norms and this also had a positive impact on the bank’s yield on earning assets.

Banking sector spreads remained under pressure in 2013 on account of decline in average KIBOR. Given that minimum deposit rate on saving products has been linked to repo rate, spreads are now likely to remain range bound. Given its size and outreach, the bank has room to improve its deposit mix. The management is focusing on enhancing the proportion of current accounts in the deposit mix; a new liability team is being built for this purpose.

During the on-going year, Syed Ahmed Iqbal Ashraf was appointed as the President of the bank. Some turnover has been witnessed at this position over the past year. Stability at the position of President/CEO is essential for setting strategic direction of the bank and continuity in policies.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 501) or Ms. Sobia Maqbool, CFA (Ext: 604) at 35311861-70 or fax to 35311872-3.

Abdur Rahim

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. JCR-VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2014 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited