Karachi, June 16, 2016: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Zarai Taraqiati Bank Limited (ZTBL) at ‘AAA/A-1+’ (Triple A/A-One Plus). JCR-VIS has also reaffirmed ratings of ‘AAA/A-1+’ (Triple A/A-One Plus) assigned to Government Guaranteed Obligations of ZTBL. Outlook on the ratings is ‘Stable’. The previous rating action was announced on June 19, 2015.
The ratings assigned to ZTBL take into account the implicit support of Government of Pakistan (GoP) being the ultimate shareholder of the bank through State Bank of Pakistan (SBP). The ratings also draw comfort from the prominent role of ZTBL in the agriculture development of the country. Earlier GoP had decided to covert entire outstanding debt amount including accrued markup into equity investment of SBP in the bank, however latter it was decided to convert SBP debt-principal and subordinated loan into redeemable preference shares while accrued markup amount will be converted into ordinary shares. Principal of the preference shares and return thereon is guaranteed by the GoP.
ZTBL’s share in agriculture lending declined during FY15 however continues to remain highest among all financial institutions. While asset quality indicators have improved on a timeline basis, quality of financing portfolio has room for further improvement.
Liquidity profile draws strength from the sizeable investment in government securities carried on balance sheet. While deposit base posted a growth of around 35% during FY15, deposit trends have yet to achieve maturity also reflected by high concentration levels. In view of this, the institution may need to maintain a sizeable liquidity cushion. Deposits mobilized by the bank are guaranteed by the GoP under the Bank’s (Nationalization) Act, 1974.
While revenue from lending portfolio posted healthy growth on the back of higher advances portfolio, core earning of the bank declined attributable to markup expense recognized on borrowing and subordinated debt from SBP, a one-off item. Going forward, markup expense is expected to rationalize and would primarily include markup expense pertaining to preference shares, in addition to deposit cost.
For further information on this rating announcement, please contact the undersigned (Ext: 501) or Mr. Mohammed Khalid Ali (Ext: 508) at 35311861-70 (10 lines) or fax to 35311873.
JCR-VIS Entity Rating Criteria: Government Supported Entities (July 2002): http://jcrvis.com.pk/images/gse.pdf
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