Press Release

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

Karachi, June 28, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of National Bank of Pakistan (NBP) at ‘AAA/A-1+’ (Triple A/A-One Plus). The long term rating of ‘AAA’ signifies highest credit quality; risk factors are negligible being only slightly more than for risk-free Government of Pakistan’s debt. The short-term rating of ‘A-1+’ signifies highest certainty of timely payment; short-term liquidity, including internal operating factors and access to alternative sources of funds, is outstanding and safety is just below risk free Government of Pakistan’s short-term obligations. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 29, 2018.

Assigned ratings are driven by the bank’s systemic importance, ownership structure with majority shares (75.6%) held by the Government of Pakistan (GoP), and NBP’s role in handling treasury transactions for the GoP as an agent to the State Bank of Pakistan (SBP). The rating also reflects the bank’s positioning as the largest public sector bank in the country having market share of 15.0% (2017: 13.2%) in domestic deposits and 12.4% share of gross advances. Current ratings are also supported by the bank’s improved operating profitability and adequate liquidity profile. Capitalization indicators of the bank remain healthy; the same may come under pressure in case of unfavorable outcome of the litigation related to legacy pension case, and will require further strengthening to remain commensurate with the assigned ratings benchmarks.

Growth in domestic advances has also maintained its momentum with the industry growth given market share in terms of domestic advances increased slightly from 12.2% to 12.4%, at end-2018. NBP’s lending portfolio grew largely on account of lending to the private sector during the outgoing year. Going forward, the management will focus on increasing the loan book in tandem with managing credit risk at adequate levels. Growth in advances improved overall asset quality indicators despite classification of a significant single-group exposure.

Overall liquidity profile is supported by sizeable liquid assets in relation to total deposits and borrowings and existence of adequate cushion in Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) vis-à-vis the regulatory requirements. However, concentration in deposits depicts room for improvement. In view of the same, the bank’s strategy is focused on enhancing the proportion of non-remunerative deposits in the deposit mix, in addition to achieving overall growth in deposit base. With advent of Deposit Protection Scheme, the bank’s management expects sovereign guarantee on their deposits to continue; the same is one of the key rating drivers.

Profitability levels of the bank were largely driven by volumetric growth in advances along with fresh exposure in investments portfolio. Along with earning assets-mix, overall profitability of NBP is highly dependent upon any future provision charge on the advances portfolio, as well as the contingent pension charge owing to the legacy pension case. The management is currently working towards enhancing compliance & control framework of its international branches.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Ms. Muniba Khan (Ext: 215) at 35311861-70 or fax to 35311872-3.

Javed Callea

Applicable rating criterion: Commercial Banks Methodology - March 2018

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (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.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.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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