News Column

JCR-VIS upgrades entity ratings of ZTBL

August 9, 2014

JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded the entity ratings of Zarai Taraqiati Bank Limited (ZTBL) from A/A-2' ( single A/A-two) to `AAA/A+' ( triple A/A-one plus). The outlook on the ratings is `stable', said a press release here on Friday. The rating action is driven by the recent decision by the Government of Pakistan to reconcile the outstanding liabilities on the balance sheet of ZTBL towards the State Bank of Pakistan (SBP) and convert the same into equity. As a result of this exercise, the previously prevailing uncertainty as regards the balance owed to SBP has been eliminated and an amount of Rs 89.5 billion (principal Rs 54.5 billion and accrued mark-up Rs 35 billion) will be converted into equity.

The implicit support of the government of Pakistan had been a key consideration in the previously assigned entity ratings with GoP as the primary shareholder of the bank. The recent decision of the GoP demonstrates its support to the mandate of the institution while also validating JCR-VIS' assumption underlying the assigned ratings. The said transaction will augment the bank's equity base by Rs 89.5 billion and notably improve the stand alone risk profile of the bank based on this demonstrated support by the GoP. The entity ratings have been converged into the 'AAA/ A-1+' ratings assigned to the government guaranteed obligations of the bank. In recent times, ZTBL has also deployed greater efforts in generating deposits.The safety of deposits mobilized by the bank is explicitly guaranteed under the Bank's (Nationalization) Act, 1974. The bank has also initiated treasury operations, though the quantum of same is currently limited. As per management, the bank has applied to the SBP for commercial banking license.

JCR-VIS will continue to track the scope of business activities undertaken by the bank and unguaranteed portion of liabilities in relation to total balance sheet footing; any meaningful change in this regard may trigger rating review. Revision in mark-up rates over time has improved the commercial viability of the institution continuous check on overheads and portfolio quality is essential to allow the recent changes to translate into sustained improvement in profitability.Following the conversion of SBP's debt into equity, mark-up expenses associated with the same will be eliminated, having a positive impact on profitability.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: National Herald Tribune (Pakistan)

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters