Press Release

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

Karachi, June 29, 2018: 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. The previous rating action was announced on June 30, 2017.

NBP continues to remain the market leader in terms of public sector lending, however, growth in financing portfolio was primarily manifested in the private sector advances during the outgoing year. Asset quality indicators of the bank witnessed improvement due to growth in advances portfolio outweighing the growth in classified advances. Given that more than nine-tenth of portfolio comprises sovereign exposures including low duration securities, credit and market risk emanating from same is considered manageable.

During 2017, market share of the bank in terms of domestic deposits has witnessed reduction as part of bank’s deliberate strategy to reduce its cost of funding by improving deposit profile and focusing on low cost deposits. Improvement in deposit mix was evident by higher proportion of CASA on timeline basis. Besides improving deposit mix, overall liquidity profile is supported by sizeable liquid assets in relation to total deposits and borrowings and presence of adequate cushion in Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) vis-à-vis the regulatory requirements. However, concentration in deposit depicts room for improvement as the same increased in 2017.

Volume driven growth was observed in operating profitability of the bank. Future growth remains contingent upon outcome of legal case related to pension benefits and any unforeseen additional costs to ensure compliance in overseas branches. As per the disclosure in the financial statements, management of the bank expects a favorable outcome in the pension case. Moreover, NBP signed a written agreement with the Federal Reserve Bank of New York in March 2016 for compliance and risk management matters which the Bank is in the process of addressing. The bank is of the view that while it seeks to comply with all the regulatory requirements, there is no indication of any financial impact or penal consequences. The ratings would be reviewed, if needed, with the unfolding of events in these aforementioned matters.

Assigned ratings of the bank are underpinned by Government of Pakistan’s (GoP) majority shareholding in the bank, NBP’s role in handling treasury transactions for the GoP as an agent to the State Bank of Pakistan (SBP) and secured deposits under the Banks’ Nationalization Act. Assigned ratings are also supported by the bank’s improved operating profitability levels and adequate liquidity profile. Capitalization indicators of the bank remain healthy; the same may come under pressure in case of unfavorable outcome of the pension case and will require further strengthening to remain commensurate with the assigned ratings benchmarks.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Mr. Jazib Ahmed (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 2018 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited