Karachi, June 30, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has maintained entity ratings of ZTBL at ‘AAA/A-1+’ (Triple A/A-One Plus). The medium to long-term rating of ‘AAA’ denotes highest credit quality, with negligible risk factors, being only slightly more than for risk-free debt of Government of Pakistan (GoP). The short-term rating of ‘A-1+’ denotes highest certainty of timely payment, liquidity factors are outstanding and safety is just below risk free short-term obligations of Government of Pakistan. The previous rating action was announced on June 30, 2020.
The ratings assigned are underpinned by the implicit support of Government of Pakistan (GoP) being the sole shareholder of the bank. The ratings incorporate the fundamental role of ZTBL in the overall ecosystem of the country since the bank remains the principal development financial institution used as an agricultural financing arm by the GoP. Gross loan portfolio has been depleting on a timeline basis on account of lower disbursements vis-a-vis recoveries.
The bank’s risk profile on a standalone basis has remained weak with high infection in past three years with some recovery and portfolio improvement actions being taken in the outgoing year. The bank has not availed the forced sale value benefit of mortgaged land and buildings, as a matter of prudence, against non-performing loans. Liquidity has remained adequate with higher investments in liquid government securities. Given considerable portion of PIBs are floating rate, market risk arising from the same is considered manageable. Meanwhile, capital adequacy ratio has remained sound.
The management is projecting relatively better performance in the ongoing year. Meanwhile, improvement in recoveries due to various measures taken and curtailment of non-performing loans on back of centralizing the loan approval system is expected to augur well for the bank. Amount received from GoP against fiscal package for markup subsidy also provides some comfort. Amount of loans rescheduled under the SBP covid relief scheme as proportion of net advance portfolio was modest vis-a-vis industry, the same is expected to have controlled impact on asset quality over the rating horizon.
Seven-member Board of Directors (BoD) including two ex-officio members has been formed in Dec’20. Regular BoD meetings have started to take place recently after a gap of almost four years which is considered a positive development. Organizational structure policy of the bank has been revised and HR consultant was hired for the purpose. Ratings would remain dependent on meeting recovery targets, improving asset quality indicators and strengthening deposit base, going forward.
The rating has been placed on ‘Rating Watch- Developing’ status as ZTBL is in the process of seeking clarity from Ministry of Finance (MoF) regarding current applicability of Section 5(4) of the Bank Nationalization Act 1974 (BNA) providing government guarantee to its depositors, given that ZTBL is a member institution of Deposit Protection Corporation (DPC). VIS would re-evaluate the rating upon receiving further clarity on the matter from MoF.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan