Press Release

Ratings of Zarai Taraqiati Bank Limited

Karachi, December 17, 2013: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned entity ratings of ‘A/A-2’ (Single A/A-Two) to Zarai Taraqiati Bank Limited (ZTBL). 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 entity ratings take into account shareholding structure of the institution, with Government of Pakistan (GoP) having a stake of 99.9% while residual shareholding is vested with provincial governments. The implicit support of the GoP has been built into the entity ratings assigned to the institution. The entity ratings also take into account ZTBL’s status as the premier agriculture sector development finance institution. ZTBL is used as a financing arm by the GoP, with credit allocation decision taken as part of the country’s annual budgeting process. The bank has significant presence in rural markets, operating through a network of 373 branches.

The ‘AAA/A-1+’ ratings assigned to Government Guaranteed Obligations take into account the federal government guarantee on credit lines obtained from the State Bank of Pakistan (SBP) that form sizeable portion of ZTBL’s funding. Safety of deposits mobilized by the bank is also explicitly guaranteed under Bank’s (Nationalization) Act, 1974.

Establishment of treasury function has allowed the institution to generate additional liquidity under repurchase transactions, though the quantum of same is currently limited in-terms of overall funding mix. JCR-VIS will continue to track the un-guaranteed portion of liabilities in relation to total balance sheet footing. Liquidity arising out of fresh deposit mobilization activity was deployed in low risk government securities, and will continue to be done so as a policy matter while lending activities will continue to be financed by recoveries. Given this policy, realizing maximum recoveries is considered important towards achieving the allocated credit disbursement target. Non-performing loans (NPLs) of the bank have remained high; management expects to realize improvement in the same, going forward.

Restructuring of credit lines and subordinated debt to the tune of Rs. 54.5b is under consideration by the SBP, Ministry of Finance (MoF) and ZTBL, however; terms of the same have not been finalized. Given ZTBL’s strategic importance, it may reasonably be expected that any decision in this respect will not jeopardize the risk profile of the bank and/or diminish its capacity to function in line with its objectives. JCRVIS will continue to monitor developments in this regard.

Aggressive growth in deposit base is envisaged for 2014. The bank possesses significant potential to tap onto the largely unbanked rural market, through its extensive presence in such markets. There have been noteworthy changes in the bank’s technological infrastructure in recent periods. The activation of NIFT membership and real time gross settlement (RTGS) in selected branches has improved the quality of banking services offered by the bank. At present, loan disbursement and recovery process of all branches is online which has improved operational efficiency and reliability of data. In order to automate back-office operations, efforts are underway to implement Oracle E Business Suite which is projected to go-live by March, 2014.

Currently, the board of ZTBL is non-existent. Timely reconstitution of the board by the MoF is critical to ensure continuous oversight of the bank’s operations.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA at 021-35311861-70 or Mr. Maimoon Rasheed at 042-36610681-84.

Jamal Abbas Zaidi
Deputy CEO

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 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 2013 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .