Press Release

VIS Reaffirms Ratings of National Bank of Pakistan

Karachi, June 27, 2022: 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). Outlook on the assigned ratings is ‘Stable’. 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. Short-term rating of ‘A-1+’ signifies highest certainty of timely payment; short-term liquidity, including internal operating factors and/ or access to alternative sources of funds, is outstanding and safety is just below risk free Government of Pakistan’s short-term obligations. Previous rating action was announced on June 28, 2021.

Assigned ratings continue to take into account NBP's position as the country's second largest commercial bank with systemic importance, strong domestic operations and sovereign sponsorship. The Bank also enjoys its role in handling treasury transactions for GoP as an agent to State Bank of Pakistan (SBP). On international front, the Bank has advanced further in the process of closing certain overseas branches, which are a drag on profitability. Going forward, closure of 2 overseas subsidiaries along with 3 international branches is planned; regulatory approvals have been sought. Governance environment follows best practices with a well-composed board and its committees. However, with recent tenure completion of certain directors and CEO, their replacement needs to be expedited. Currently, an experienced senior management resource holds a look after charge for CEO.

NBP’s financing portfolio grew by ~13% in 2021, trailing the industry growth. Corporate and investment banking continue to account for nearly one-half of loan portfolio, followed by commercial and retail segments, with overall client and sectoral exposures being diverse. In light of high interest rate environment and weak economic indicators, management continues to be cautious towards loan portfolio growth. Asset quality indicators has depicted weakening as evident from rising trend in non-performing loans (NPLs) and industry's second highest gross infection. However, provisioning coverage remains sound.

In 2021, deposit base crossed the Rs. 3tr mark, with 25% annual growth rate outpacing industry growth. Deposit granularity has weakened over time; nevertheless, comfort is drawn from cost effective & strong retail deposit mix. Adoption of single treasury account system will have a significant impact on NBP's government deposits, which have averaged at ~29% over the past 3 years. In line with industry, major chunk of liquidity generated was directed towards sovereign securities, which in total constitute ~90% of investment portfolio, thus limited credit risk. In addition, with ~59% exposure in floating rate PIBs, market risk is also manageable. Liquidity buffers remain sound with sizable coverage of deposits and borrowings by liquid assets and sufficient cushion over regulatory requirement for LCR and NSFR.

Spreads contracted by nearly 100bps, resulting in ~6% decrease in net interest income in 2021 while non-markup income remained largely unchanged. Despite an improvement in efficiency ratio and reduction in provisioning charges by more than one-half, profitability profile was impacted by a fine/penalty paid (due to delays in compliance-related improvements in NY branch) and significantly higher effective tax rate (super tax of 2.5% for ADR ranging from 40% to 50% and tax inadmissibility of civil penalty). Capitalization indicators have improved on a timeline basis, as reflected by significant increase in CAR from 16.25% (as of Dec'18) to 21.78% (as of Mar'21). With no dividend payout, equity base continues to grow. However, net NPLs to Tier 1 Capital compares adversely vis-à-vis large-sized banks. Going forward, improvement in infection ratios and maintenance of capital and liquidity buffers will remain important from a ratings perspective.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 203) or the undersigned (Ext: 201) at (021) 35311861-70 or email at

Javed Callea

Applicable rating criterion: Commercial Banks Methodology - June 2020

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