Lahore, December 15, 2022 (PPI-OT):Amidst Covid-19 impact, the Bank’s GLP witnessed a declining trend. Asset quality was impaired significantly, as the deferred book to total GLP was sizeable. Furthermore, considering the devastation of the massive flood, since Jul’22 the NPLs of the bank are expected to increase significantly, due to which the profitability of the Bank came under pressure. This has resulted in the erosion of the Bank’s Capital Adequacy Ratio, which the Bank is required to maintain at 15%. The Bank to supplement its CAR, issued Tier-II and Tier-I TFCs. Apart from this the Bank is also seeking equity support from the sponsors in proportion to their existing shareholding amongst them.
The approval of the equity injection is sought from its regulator. The bank management represented that, based on this communication, they also engaged with their regulator, to allow payment, falling due, on the said TFCs, as profit. The terms of the TFCs require that, as per the Lock in Clause, neither profit nor principal, will be payable, if such payments will result in a shortfall in the bank’s MCR/CAR or cause an increase in the shortfall.
These approvals are requisite for the repayment of the profit payment, given the aforementioned circumstances. Timing is crucial to help the Bank remain current on its financial obligation to the bondholders. As challenges in recovery and markup suspension would arise. Management’s commitment to recouping the asset health and consolidating the Bank’s position within the stipulated time is an acute necessity. However, sponsor support through equity injections is essential.
The ratings are dependent upon the out-turn of management’s plans to steer the risk profile of the bank towards an improved trajectory. Timely sponsor support is imperative. The ratings would also monitor the impact of technological advancement on the operational and risk efficacy of the Bank and reflect the need to oversee the risk profile of the Bank against unavoidable challenges, going forward.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com