About

The Bank of Punjab (BOP) was founded in 1989 in accordance to the Bank of Punjab
Act, 1989 and was given the status of a scheduled bank in 1994. 51% of BOP shares
are owned by Punjab government while the rest of 49% is owned by individuals,
businesses and foreign investors. Today, the bank is being operated as scheduled
commercial bank with almost 280 branches across all major locations in Lahore. BOP
facilitates its customers with a wide range of services which includes deposits in local
currency and client foreign currency, remittances, and advances to businesses in the
trade and agriculture industry. BOP takes pride in providing stability to national
economy by mobilizing untapped resources, promoting savings and providing funds
for investments. Moreover, the bank offers lucrative rates on deposits, helps
customers in opening foreign accounts and handles matters of foreign exchange of
customers like providing with guidance and helping in the money market operations.
Turnaround story
In 2007, BOP was under the scrutiny of relevant public authorities and was under the
attack from local media due to different scandals relating to imprudent lending,
mismanagement and fraudulent activities under the ex-president of the bank, Hamish
Khan. The public and its stakeholders had lost confident in this bank when the news
of malpractice got out and many investors started pulling out money, leaving BOP is a
huge financial crisis. BOP had one of the highest non-performing loan portfolios in
the banking industry, inadequate current capital and an inefficient management team
which was unable remain complaint with the basic ethical practices. It is reported that
the Bank had a non-performing loan portfolio amounting to over Rs. 80 billion and
against the required capital adequacy ratio of 10%, the bank had a negative ratio of -
14% (amounting to almost negative Rs. 20 billion. During the same period the bank
was involved in Haris Steel scam worth Rs. 8.4 Billion and had further disbursements
of over Rs. 20 billion concessional loans to the directors of the bank. Due to this,
public lost confidence and approximately Rs. 50 billion was pulled out of the bank by
various investors, leaving the bank in serious liquidity crisis. All this along with a
very weak internal control system and an incompetent audit team, the bank was in
complete shambles and was threatened to its very existence.

To curb the damage, Naeemuddin Khan was selected to take over as the president and
CEO and he brought with him a new management team with a gigantic task of
restructuring, reorganizing, rebuilding of public image and regaining the trust of
general public and all the stakeholders. What followed was a complete revamping and
reorganization of the bank, with the help of The State Bank of Pakistan and the
government of Punjab. Recovery of inherited non-performing loan was given
uttermost priority and besides restructuring the special assets management function of
the bank, all possible measures were taken to recover each and every rupee from both
local and foreign defaulters. A comprehensive internal control regime was put in
place. The internal audit function was made independent and the risk management
department was revamped with the objective to effectively manage all inherent risks.
The hard work and competency of the new team started reflecting on the statements
as the bank deposits grew by 117% over the following years and touched Rs. 356
billion. By 2015, the bank experienced a tremendous growth of 730% in bank
investments with major concentration in government securities to improve overall risk
profile. BOP started prudent lending to the top-notch businesses and in. the SME
sector and gradually built Rs 230 billion by 2015. BOP was also able to achieve
compliance with minimum capital requirement and the capital adequacy ratio also
increased to 11.33%

Credit rating and market share

The continuous efforts of the management team to improve the conditions of BOP has
resulted in a very positive credit ratings for the bank. According to The State Bank of
Pakistan as at July, 2018 the credit rating awarded to BOP by PARCA was A1+ was
short term credit and AA for long term credit. This indicates a very low risk credit and
shows how the hard work and the turnaround of the bank is acknowledged by the
market and stakeholders. There has been a constant upward trend since 2008 for the
bank with its credit rating improving.

JCR-VIS credit rating company, in accordance with The State Bank of Pakistan
categorizes 26 commercial banks in Pakistan into three different categories ie Large
banks, medium banks and small banks based on their market share with large banks
obtaining more than 6% of the market share, medium banks obtaining 3-6% of the
market share and small banks obtaining less than 3% of the market share. According
to a report in 2016, Bank of Punjab was placed under the medium bank with a total
market share of 3.9%. Currently one share of BOP is being traded at Rs. 13.79 with
outstanding shares of 2.64 billion and market capitalization of Rs. 33.81 billion
(Financial Times).

Citations

“Bank of Punjab.” Bank Nizwa SAOG, BKNZ:MUS Profile - FT.com,

markets.ft.com/data/equities/tearsheet/summary?s=BOP%3AKAR.

JCR-VIS, Commercial banks – Sector Update. October, 2016

http://jcrvis.com.pk/docs/Banking201609.pdf (COULD NOT CITE
PROPERLY)

http://www.sbp.org.pk/publications/c_rating/2018/Ratings-16-July-2018.pdf
(COULD NOT CITE PROPERLY)

Haris, Muhammad. “The Bank of Punjab (BOP)- History, Board of Directors &
Awards.” Www.pakpedia.pk, Pakpedia, 3 Jan. 2017, www.pakpedia.pk/the-
bank-of-punjab.

Vision Statement :
“To be a Customer Focused Bank with Service Excellence”

Mission Statement:

“To exceed the expectations of our stakeholders by leveraging our

relationship with the government of Punjab and delivering a complete range of
professional solutions with a focus on program driven products and services in the
agriculture and middle tire markets through a motivated team.”

 Commitment to economic strength

 Commitment to corporative governance
 Commitment to excellence and work ethic

Goals:

Our Customer As our first priority

 Profitability For the property of our stakeholders that allows us to
constantly invest, improve and succeed.
Corporate Social To enrich the lives of the community where we
Responsibility (CSR) operate
Recognition & For the talented and high performing employees
Reward
Excellence In everything we do
Integrity In all our dealings
Respect For our customers and each other

Strategic Plan:
The bank of Punjab has played a vital role in the economy through mobilization of
untapped local resources, promoting savings and providing funds for investments.
The Bank of Punjab has the privilege to discharge its responsibilities towards national
prosperity and progress. Ever since its inception in 1989, Bank of Punjab Bank has
been facilitating the various development projects initiated by Punjab Government for
the uplifting of various downtrodden segments of the society such as Kissan Dost
Production Loan. Initiatives such as efficient vehicle distribution among educated
unemployed youth as part of its self employment schemes are part of the bank’s
history of commitment towards society. Not only does Bank of Punjab holds the
largest lease portfolio in the country, but its impeccable recovery system has enabled
the management of large scale portfolio’s and a recovery rate of 99.9%.

Organization Structure

Bank Of Punjab’s basic organizational structure consists of a board of directors,

followed by the President Mr. Khalid Siddiq Tirmizey. He leads various
departmental heads, and the hierarchy trickles down from there to various regional
managers across various cities of the province. Operations of the branch are
controlled by the branch manager and the operations manager.

Major Departments
Bank Of Punjab has the following departments, and operates 490 branches across
Punjab.

 Cash Department
 Remittances Department
 Clearing and Collection Section
 IT Department
 Account Opening Section
 Audit Departments
 Consumer Finance Department

Business Development Department

CAMELS
The CAMELS rating system is a supervisory framework of SBP used by banks to
highlight their stability based on performance in different dimensions:
1. Capital adequacy
This shows the relationship between BOP’s equity and risk weighted assets. It
also shows the bank’s ability to cover different risks for example credit,
operational etc and in order to prevent failure due to losses on loan a minimum
CAR is essential which under the requirements of Basel III is atleast 8% for
banking institutions. The indicator of capital adequacy is Capital Adequacy
ratio for the purpose of which capital is classified into Tier 1 and Tier 2. Tier 1
is comprised of equity capital for example common stock preffered stock etc
and free reserves whereas Tier 2 is comprised of the amount derived from
issuing of bonds which are long term in nature. The formula is as follows:
CAR= (TIER I+TIER II)/RISK-WEIGHTED ASSETS.

BOP’s CAR has improved as compared to the previous year, It is 12.66% in

2018 as compared to 9.73% in 2017 and SBP requires the banks in Pakistan to
 maintain a CAR of atleast 11.25% so it is also compliant with the CAR of
SBP this year.
2. Asset quality

This rating evaluates the credit risk associated with an asset. The quality of any banks
assets is assessed by transferring the deposited amount of the bank in loan portfolio,
investments, real estate, securities and off-balance sheet Transactions etc. Through the
quality of these aforementioned assets, the future losses of a bank and it’s ability to
overcome these unanticipated losses can be gauged. Losses are one of the biggest
banking problems which can effect the earning capacity of the bank because they are
written off against capital eventually. So, the asset quality is assessed with respect to
the level and severity of non-performing assets, adequacy of provisions, recoveries,
distribution of assets etc (sbp). In CAMELS rating framework, the asset quality is
assessed based on the following four classifications (Sundararajan & Errico (2002)):

(1) intensity, allocation and rigorousness of classified assets

(2) level and composition of nonperforming assets

(3) the competence of estimating reserves and

(4) the established capabilities to manage and collect bad debts.

The indicator of asset quality includes non-performing loans to gross loans.

The non performing loans to gross loans ratio of BOP has decreased from 15.3% in
2017 to 12.4% in 2018 so it is able to recover major part of its loans.

3. Management
Management of any bank is a qualitative factor rather than a quantitative
factor which cannot be measured by ratios however, the soundness of the
management can be measured by earning per employee, cost per loan, cost per
unit of money lent and average loan size, expense ratio, these indicators can be
used to measure the management quality (Baral, 2005, p. 44. The banks’s
performance in all these areas shows that they have a sound and talented
management.
4. Earnings
Earnings shows the financial strength of the bank. The most popular indicator
is Return on Assets which shows that the higher is the ratio the greater are the
profitability. This ratio for BOP has increased from 0.8% in 2017 to 1.1% in
2018 which means that the BOP is becoming efficient in converting its
investment into profits which is positive sign. Along with this, Return on
Equity has also increased from 15.6 to 24.3% from 2017 to 2018 which shows
that bop is using its capital in an efficient manner. The earnings per share have
also increased from 1.41 in 2017 to 1.46 in 2018.
5. Liquidity
Liquidity management is essential for the bank so that it can meet its financial
obligations such as payment of deposits, operational expenses etc. The
liquidity coverage ratio (LCR) is the proportion of highly liquid assets(cash
 etc) held by banks, to ensure they meet short-term obligations. The LCR for
BOP has reduced from 133.45% in 2017 to 125.37% in 2018. Also it’s a
requirement of Basel III to maintain LCR so that the bank is able to fund cash
outflows for thirty days. The requirement for 2018 is 90% under Basel III.
6. Sensitivity

Sensitivity shows how some risk factors can influence the performance of banks. This
can be gauged at how lending to specific organizations can effect the bank for
example lending to agri or medical company etc. The ratio that calculates the
sensitivity of the market risk is Total securities to total assets. The ratio basically tells
the correlation of banks securities with total assets and provides the bank with the
percentage change of its portfolio with respect to changes in interest rates or any other
issues. So basically the higher the value higher is the risk associated so for BOP it is
moderate. Also, the company has developed an SME centre to provide banking
solutions to that sector which shows its diversified interests and how it can diversify
its risks.

Future Plans:

1. China Pakistan Economic Corridor (CPEC) is expected to increase

construction related activites in the Pakistan which would boost the economy
and increase the lending of BoP.
2. The Bank has announced 7.5% cash dividend after a decade.
3. Opening of 36 branches is planned
4. Tapping the untapped areas for example offering agricultural services in Gilgit
Balitsitan
5. Implementation of Core Banking Systam (CBS) ‘FlexCube’ for greater
efficiency and effectiveness in banking operations.

https://www.diva-portal.org/smash/get/diva2:448378/FULLTEXT01.pdf

https://www.bop.com.pk/Documents/Financials/Annual%20Accounts/BOP%20Annu
al%20Report%202017%20%2016.5.18.pdf

https://nation.com.pk/05-Mar-2019/bop-announces-dividend-payout-after-a-decade

https://lms.lums.edu.pk/access/content/group/912c230f-6d85-4e58-8c4c-
37bd53d869e5/Snapshot%20of%20Banking%20Results%20-
%2030%20June%202018.pdf

Sundararajan, V., & Errico, L. (2002). Islamic Financial Institution and Product in the
Global Financial System: Key Issues in Risk Management and Challenges Ahead.
Tehran, 2002-09-01. IMF working paper, International Monitory Fund, 1-27.

Asset Liability Management

In a well managed financial institution all the diverse management decisions are
coordinated across the institution so that all actions taken are consistent and hence
improve the net worth of that institution rather than damage its earnings. This type of
coordintaed decision making is known as asset liability management. Similarly Bank
of Punjab like other instituttions also follows this decision making process and the
respective strategies involved with this sytem. Adopting this system helps them to
handle challenging events such as business cycles and seasonal pressures which in
turn allows them to shape portfolios of assets and liabilities in ways that promote the
institutions goals.
Strategies
Different strategies used by Bank of Punjab include namely the Asset management
strategy. Liability management strategy and Funds management approach. These
startegies mainly contemplate on the fact that how the bank carries out activities to
manage its assets and liabilities. Furthermore it shows the journey of evolution of the
bank from more traditional methods to the fund management approach whereby the
bank focuses on both the asset and liabilitiess sides simultaneously in order to bring
out consistency in management decisions and policies. This approach has also helped
Bank of Punjab in maximizing its spread between revenues and costs and made them
capable of having greater command over their control risk exposure.
Asset Liability management Challenge: Interest rate risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to
changes in market interest rates. The Bank is exposed to interest rate risk for its
investing and/or financing activities where any major fluctuation in the market
interest rate/yield can affect both the value of the financial instrument as well as the
profitability of the Bank. To minimize this risk the Bank’s Assets and Liabilities
Committee (ALCO) keeps a constant watch on the interest rate scenario in the country
and on regular intervals reviews pricing mechanism for assets and liabilities of the
Bank.
By looking at the exhibit shown below we can determine that Bank of Punjab has a
Negative IS GAP which means that it is a liability sensitive financial firm. Moreover
in a market position where the management believes that the interest rates are falling,
Bank of Punjab is considered to be in a good position with a Negative IS GAP but if
the market interest rates are increasing then Bank of Punjab needs to increase its
interest sensitive assets and decrease the interest sensitive liabilities.

Elimination of interest sensitive Gap

As has already been established that Bank of Punjab has more interest sensitive
liabilities than assets and hence a negative interest sensitive Gap there is a constant
risk of losses if interest rates rises as the net interest margin in that case would be
reduced. In order to tackle this situation the management can either shorten their asset
maturities or lengthen their liability maturities which would help bridge the IS Gap
and hence reduce risk or they could simply increase their interest sensitive assets and
liabilities. However if they anticipate the interest rates to show a decreasing trend then
they need not show any response as they are already in ideal position considering the
respective situation.
Liquidity Risk

Liquidity risk is the potential for loss to an institution arising from either its inability
to meet its obligations or to fund increase in assets as they fall due without incurring
unacceptable cost or losses. The Bank’s ALCO is primarily responsible to ensure
adequate maintenance and monitoring of liquidity and minimization of liquidity risk.
The Bank manages its liquidity risk by continuous monitoring of the maturity profiles
of its assets and liabilities, strengthening of its credit recovery procedures by focusing
on retail and medium-sized customers and managing open positions through effective
treasury operations. Allocation of funds towards various business prepositions and
pricing of assets and liabilities of the Bank are given significant importance.
https://www.bop.com.pk/Documents/Financials/Annual%20Accounts/BOP%20Annu
al%20Report%202017%20%2016.5.18.pdf
Capital Management
“The State Bank of Pakistan requires all banks to comply with the capital adequacy
framework which in this case constitutes of two capital standards, i.e the Minimum
Capital Requirement (MCR) and the Capital Adequacy Ratio (CAR). Capital
Adequacy Ratio (CAR) and the Minimum Capital Requirement (MCR) for
continuing its operations after the Punjab government injected fresh equity and the
bank raised additional funds by issuing right shares to the existing shareholders”
(State Bank of Pakistan).
According to the rules set up by SBP, every bank should have a minimum amount of
paid up capital at all times. In order to support the capital structure of the Bank, the
Government of the Punjab, being majority shareholder, deposited share deposit
money of Rs 10.0 billion and Rs 7.0 billion in years 2009 & 2011, respectively under
arrangements. This requirement is known as the Minimum Capital Requirement, and
Bank of Punjab satisfies this requirement as it has a paid up capital of Rs. 23.6 billion.
“However, the Bank’s Capital Adequacy Ratio (CAR) stood at 9.73% i.e. less than
the applicable requirement of 11.275%. The Bank has prepared a capital management
plan, including issuance of Tier-II capital, for compliance with minimum prescribed
level of CAR till June 30, 2018. Accordingly, the SBP, on the basis of capital
management plan, has granted the Bank relaxation from the applicable CAR till June
30, 2018” (Annual Report BoP 2017).
According to the rules of SBP, all banks should comply with the CAR on both stand
alone and consolidated levels. The Capital Adequacy Ratio (CAR) assesses the capital
requirement based on the risks faced by the banks/ DFIs. The banks are required to
comply with the minimum requirements as specified by State Bank of Pakistan on
standalone as well as consolidated basis. The Capital Adequacy Ratio is also one of
the rules that State Bank has put forward for banks to continue operations.
“The financial viability created through capital management measures and superb
performance of the Bank in the past few years has enabled the Bank to take an
important step of fully providing for the legacy Non-performing loans portfolio
(NPLs), covered through Letters of Comfort (LOCs) issued by the Government of
Punjab (GOPb)”
“As on December 31, 2017, the Bank stands compliant with the provisioning
requirement under SBP’s Prudential Regulations after charging provision of Rs. 12.3
billion required against certain exposures previously not subjected to provisioning
criteria in view of the relaxation granted by SBP on the basis of two LOCs issued by
the GOPb and in pursuance of achieving the capital management plan to attain level
of CAR as prescribed by SBP, has successfully raised Rs. 4.3 billion as Tier-II capital
through issuance of rated and unlisted privately placed term finance certificates”
(Annual Report BoP 2017).
In 2013, “the SBP issued revised instructions on the computation of Car based on the
Basel 3 framework. Although the full implementation is to be made certain by 31
December 2019, the SBP made these changes effective from 31 December 2013.
According to the guidelines issued by the SBP, Bank of Punjab computes it CAR on
the basis of the Basel 3 framework. The approaches used to calculate the CAR under
the framework are:
 Credit risk; Standardized Approach
 Market risk; Standardized Approach
 Operational risk; Basic Indicator Approach
According to the framework provided above, the CAR of Bank of Punjab on
December 31, 2017 turns out to be 9.73% on stand-alone basis. The value is less than
the required CAR of 11.275% as per the guidelines provided by SBP under the Basel
3 framework” (State Bank of Pakistan).
“Though financial viability created through capital management measures and
superlative performance, nonperforming loans of Rs 16.5 billion remained un-
provided by close of 2016. The paid up capital of the Bank was Rs 25 billion and if
the Bank provides cover to Rs16.5 billion bad loans, it will fall below the capital
adequacy ratio (CAR). It was therefore the Board of Directors approved a
comprehensive Capital Management Plan for meeting the SBP’s provisioning
requirements and pave way to meet CAR requirement. It was decided to convert the
share deposit money of Rs7 billion, deposited by the Punjab government in 2011 for
another issue of 70% right share. In addition, a Letter of Comfort (LOC) was secured
from the Punjab government on December 31, 2017 to get the SBP’s prudential
regulations relaxed till December 2018,” says by BoP management.
“Through this way, the Bank would have enabled to support the capital structure,
ensure the retirement of Letter of Comfort (LoC) issued by the Punjab government
and achieve compliance with BASEL-III Capital Requirement of SBP. While issuing
right share, the Bank management ensured compliance with SECP’s Companies
(issue of Capital) Rules 1996, Listing Regulations of PSX.
Later, the Bank’s operational profit of Rs 8.7 billion which it earned in 2017 proved
that the Capital Management Plan approved by the BoD in 2016 successfully generate
a solid stream of earnings with consistent growth” (State Bank of Pakistan).
Liquidity Management
“Cash Management at BOP offers full range of products and services to maximize
their client’s liquidity. These services broadly include making collections and
disbursements for the companies, liquidity management, providing reconciliation
information (MIS reports) and controlling commercial electronic banking activities.
Our solutions are fully customizable and are aimed at enhancing the overall working
capital efficiency of our clients.
Their comprehensive payment services tailors to enhance accounts payable process
that eliminate many manual tasks involved in making payments, allowing staff to
spend more time focusing on core business needs. And with their Straight2Bank
channels clients can track the exact status of each payment (Dividend Payment &
processing, Payroll Management, EasyPay) through timely reports that can be
uploaded seamlessly into company’s system.
Also, their collections solution leverages the Bank's extensive regional knowledge
and widespread branch network across key markets to specially tailor solutions for
regional and local collection needs. By this, there is flexibility of catering to local
needs, thus enabling clients to meet their objectives of reducing costs and increasing
efficiency and profitability through better receivables and risk management” (Annual
Report BoP 2017).

https://www.thenews.com.pk/print/379514-bop-challenges-commission-deduction-
by-nab
https://www.bop.com.pk/Documents/Financials/Annual%20Accounts/BOP%20Annu
al%20Report%202017%20%2016.5.18.pdf
https://www.bop.com.pk/view.aspx?id=1055

BOP Products and Services

Cash Management
“Cash Management at BOP offers a full range of products and services to
maximize their client’s liquidity. These services broadly include making
collections and disbursements for the companies, liquidity management,
providing reconciliation information (MIS reports) and controlling commercial
electronic banking activities”.
PRODUCTS
Payables Management
 Dividend Payment & processing
 Payroll Management
 EasyPay (Payable Management Solution)
Receivables Management
 Collection
 Right Allocation Letter (RAL) Services
Remittances
 For the purpose of Studies Abroad
 Medical Treatment Abroad
Other Services
 Terms and Conditions for Providing e-Statement Facility
 Trade Services
 Treasury & F.I
 Utility Bills
 Lockers View
 Collection of Cheque
Apart from the commercial banking facilities, The Bank of Punjab’s Treasury
department is also an active player in Money Market, Foreign Exchange and
Islamic Treasury.
Foreign Exchange
“Foreign Exchange dealing desk deals with different currencies in inter-bank
market from liquidity perspective. Every day the bank offers competitive
exchange rates for various currencies against PKR.”
FX products
The Foreign Exchange products range provided by the bank are as follows: -
 Ready / Spot dealing.
 Forward dealing.
 SWAPS
Money Market
“Money market comprises all sorts of deals with local currency in inter-bank /
NBFI market in Pakistan. Money market desk lends and borrows a sizeable
amount for liquidity management and arbitrage in a lucrative manner”. Money
market of the bank deals with;
1. Overnight (call) lending and borrowing with Banks-NBFIs.
2. Term placement and with Banks-NBFIs
3. REPO/Reverse REPO of govt. security with central bank and other financial
institutions.
4. Investment and Trading in Treasury Bills and Pakistan Investment Bonds.
5. Investment and Trading in Corporate Investment Bonds.

Treasury Marketing Unit

“Treasury Marketing Unit endeavors to serve the corporate clients with the best
available product from a wide range of alternatives. Product variety offered to
clients varies from spot foreign exchange sales to structured products to hedge
future exposures. The BOP aims to offer tailor-made products to their customers
designed according to their risk appetite. The Bank of Punjab, Treasury
department is well equipped with skilled human resources for efficient dealing.
It also provides in-depth research to our internal and external clients for
practical insight to economy and the markets”.
Islamic Treasury
“Islamic Treasury has been set up to make investments in Shariah compliant
Treasury products, as approved by the bank’s Shariah Board and towards
Liquidity & Foreign exchange management under laid down Shariah guidelines
and meeting all regulatory Reserve Requirements like SLR/ CRR in Money
Market & SCRR/CRR for Foreign Exchange”.
Small and Medium Enterprises
Small and medium enterprises (SMEs) play a key role in social and economic
development and welfare of Pakistan. They bring about economic growth,
increase employment and contribute to the development of private sector.

SME PRODUCTS
“Keeping in view the importance of SME sector, The Bank of Punjab has offered
various lending products & Services to cater to the financial needs of the Small &
Medium enterprises with a special focus on SE customers”.
Purpose for Lending
Financing is being offered to SMEs for the following purposes:
 Managing day to day business cash flows
 Expanding business
 Buying raw material, stocks
 Buying machinery and new equipment
 Trade finance
 Assuring payments from your inland and overseas clients through trade
finance (import, export & guarantees)
Products Offered
BOP offers both funded and non funded facilities for SME businesses
Financing against Gold Assets
The Bank of Punjab has offered
following finance facilities to their
customers under the scheme of
“Soney pey Sohaga”
 Running Finance
 Cash Finance
 Demand Finance

TRADE RELATED /NON-FUNDED FACILITIES

In order to assist in the trading business of SMEs, BOP offers the following list of
facilities to its customers.
 Bank guarantee/ letter of guarantee
 Letters of credit for both local and foreign transactions
 Bill purchase/bill discounting
 Financing against imported merchandise (FIM)
 Financing against trust receipt (FATR)
 SBP export refinance (ERF I/II)
 Finance against packing credit
 Finance against foreign bills
 Foreign bill purchase
 Inland bill purchase

Status Quo and Historical Values

During the past 36 months, the price per share of the bank moved from 8.54PKR
per share to 13.86PKR per share. The changes in the price has been quite volatile
as shown by the trend provided in the graph below. The stock price hit the
minimum of 7.4PKR in December 2017 and a maximum of 20.1PKR in November
2016. This rapid and volatile movements in the stock prices are a result of varied
bank performances over that period.
If we focus on the movements of share price of the last 12 months, we can see
that the share price has increased which is a signal of improvement in the
performance by the bank which resulted in, as mentioned in Express Tribune,
reemergence of the bank and an important and attractive opportunity for the
depositors, lenders and shareholders. This was the result of a fresh equity
injection in the bank by the government of Punjab to assist in the recovery from
the era of one of the biggest frauds in the banking sector in Pakistan. Due to this
injection and positive performance by the bank and issuance of new shares, the
management was able to regain the capital adequacy ratio (CAR) and minimum
capital requirement (MCR). This helped the bank build up and offer new
promising assets to the potential borrowers.
The positive performance by the bank helped in raising BOP’s share price to
Rs14 per share by December 2019 from Rs10.9 in mid-October through an
increase of 28% after Taurus securities (National Bank Subsidiary) realized the
value of the shares when they were going through a rough patch. As a research
report on the banking sector indicated, “our investment thesis highlights the
bank’s(BOP) rise from misery amidst colossal pending loan losses and capital
inadequacy to being touted as the next value opportunity in the banking sector.
We expect CAR to arrive at 12.4% and 13.8% for CY18 and CY19 respectively
compared to the MCR of 11.90% and 12.50% for the same years. With interest
rates expected to rise in the foreseeable future, we expect the bank to register
strong earnings growth going forward compared to its peers”.
A study of the bank and the market indicated that the bank in the last 12 months
surpassed the market through the advances of 18-20% year on year basis by the
industry average of 15% which hints at positive future prospects of the bank.
Another research conducted by Taurus Securities indicated, “The bank’s yield on
net advances has improved significantly over the last three years despite
declining interest rates, enabling it to earn highest spreads over Kibor compared
to the peer average. However, mobilizing core deposits has been a challenge for
the bank, resulting in a substantial exposure to higher cost corporate and
government deposits. Half of the bank’s deposits belong to public-sector entities.
Nevertheless, deposits have grown at a CAGR of 16% in the past five years
compared to the industry growth of 13%, providing stable funding for the bank
to continue growth with a lower leverage compared to the peers”.

Market Capitalization of BOP

The market cap. Of BOP stands at PKR36.64billion while its competitors hold the
values ranging from PKR7.66billion to PKR244.44billion(MCB).
https://www.bop.com.pk/view.aspx?id=1115
https://www.bop.com.pk/Services
https://www.bop.com.pk/SME%20Products
https://markets.ft.com/data/equities/tearsheet/summary?s=BOP:KAR

PPT.
Slide 1
Products and Services
Cash Management
 Payables Management
 Receivables Management
 Remittances
 Other Services
Money Market
Treasury Marketing Unit
Islamic Treasury
Slide 2
Foreign Exchange
 Ready / Spot dealing.
 Forward dealing.
 SWAPS
SME Products
 Running Finance
 Term Finance
 Cash Finance
 Demand Finance
  Lease Finance
Gold Financing
 Soney pey sohaga
Other Trade related facilities
Slide 3
Status quo and Historical Values
 Movement from 8.54PKR per share to 13.86PKR in 36 months
 Hit a Minimum of 7.4PKR in December 2017 and a maximum of 20.1PKR
in November 2016
 Share price to Rs14 per share by December 2019 from Rs10.9 in mid-
October through an increase of 28% with the assistance of Taurus
securities
 Surpassed the industry average of advances 15% by 18-20% year on year
basis

Slide 4
Market Capitalization
 Financial Analysis

Horizontal Analysis: (as per Excel)

Statement of Financial Position

2017 2016 2015

Assets

Cash and balances with treasury banks 18.799% 36.523% 10.871%

Balances with other banks 61.381% -16.537% 101.505%
Lending to financial institutions 112.511% 89.132% -81.333%
Investments-net 21.410% 13.462% 13.668%
Advances-net 12.853% 19.448% 28.821%
Operating fixed assets 10.740% 18.635% 18.109%
Deferred tax assets-net 65.495% -18.033% -19.699%
Other assets-net 4.254% -29.212% 20.713%
19.13614% 15.44209% 12.34946%

Liabilities

Bills payable -19.557% 121.649% 9.243%

Borrowings -2.209% -27.893% 23.454%
Deposits and other accounts 22.740% 20.871% 9.545%
Sub-ordinated loans -0.022% 125.000% 0.000%
Liabilities against assets subject to final - - -100.000%
lease
Deferred tax liabilities - - 0.000%
Other liabilities 6.995% 0.689% 50.958%
19.80357% 15.06973% 12.10887%

Net assets 6.73953% 22.82424% 17.34198%

Represented by
Share Capital 70.000% 0.000% 0.000%
Reserves 209.844% -55.452% 11.904%
Share Deposit money -100.000% 0.000% 0.000%
(Accumulated loss)/unappropriated profit -525.903% -112.623% -42.717%
 10.713% 23.336% 26.681%
Surplus on revaluation of assets -19.970% 9.912% -19.383%
6.73953% 21.41534% 17.10902%

Profit and Loss/Income Statement:

2017 2016 2015

Mar-up/interest earned 16% -5% 6%

Mark-up/interest expensed 8% -14% -2%
Net mark-up/interest income 27% 11% 23%

Provision against non-performing loans 1432% -73% 207%

and advances-net
Provision for diminution in value of -17% 58% -42%
investments-net
Bad debt written off directly - - -
1287% -71% 184%

Net mark-up after provisions -88% 48% -3%

NON Mark-up/Interest Income

Fee, commission and brokerage 26% 18% -9%
Dividend income 47% 21% 53%
Income from dealing in foreign 45% -31% -41%
currencies
Gain on sale and redemption of -48% -50% 651%
securities-net
Unrealized loss on revaluation of -76% -86% 1203%
investments-for trading
Other income 11% 1% 63%

Total non-markup income -13% -31% 173%

Non mark-up/ Interest Expense

Administrative Expenses 21% 13% 19%
Provisions against other assets -10% 154% -9387%
Reversal of provision against balance - -1605% 81%
sheet obligations
Other charges 28% 69% 1%

Total non-markup expense 26% 10% 23%

Loss/profit before tax -158% 7% 75%

Less: taxation -143% 15% 83%
- - -
Loss/profit after taxation -168% 2% 70%
EPS -152% 2% 57%

Vertical Analysis: (as per Excel):

Statement of Financial position:

2017 2016 2015

Assets

Cash and balances with treasury 6.54% 6.56% 5.55%

banks
Balances with other banks 0.94% 0.69% 0.96%
Lending to financial institutions 3.78% 2.12% 1.29%
Investments-net 37.33% 36.64% 37.27%
Advances-net 45.53% 48.07% 46.45%
Operating fixed assets 1.31% 1.41% 1.37%
Deferred tax assets-net 1.65% 1.19% 1.67%
Other assets-net 2.91% 3.33% 5.43%
100.00% 100.00% 100.00%

Liabilities

Bills payable 0.52% 0.77% 0.40%

Borrowings 6.00% 7.31% 11.70%
Deposits and other accounts 85.64% 83.13% 79.39%
Sub-ordinated loans 0.69% 0.83% 0.42%
Liabilities against assets subject to 0.00% 0.00% 0.00%
final lease
Deferred tax liabilities 0.00% 0.00% 0.00%
Other liabilities 2.57% 2.87% 3.29%
95.42% 94.89% 95.20%

Net assets 4.58% 5.11% 4.80%

Represented by
Share Capital 4.07% 2.85% 3.29%
Reserves 0.49% 0.19% 0.49%
Share Deposit money 0.00% 1.28% 1.48%
(Accumulated loss)/unappropriated -0.43% 0.12% -1.11%
profit
4.13% 4.45% 4.16%
Surplus on revaluation of assets 0.44% 0.66% 0.69%
4.58% 5.11% 4.86%

Income statement:

2017 2016 2015

Mar-up/interest earned 100.000% 100.000 100.000%
%
Mark-up/interest expensed 54.795% 58.738% 64.602%
Net mark-up/interest income 45.205% 41.262% 35.398%

Provision against non-performing loans and 41.021% 3.108% 10.975%

advances-net
Provision for diminution in value of 0.248% 0.346% 0.207%
investments-net
Bad debt written off directly -
3.454% 11.182%

Net mark-up after provisions 3.937% 37.808% 24.216%

NON Mark-up/Interest Income

Fee, commission and brokerage 3.560% 3.285% 2.636%
Dividend income 0.264% 0.208% 0.163%
Income from dealing in foreign currencies 0.317% 0.254% 0.350%
Gain on sale and redemption of securities-net 3.820% 8.511% 16.035%
Unrealized loss on revaluation of investments- -0.001% -0.004% -0.027%
for trading
Other income 5.367% 5.588% 5.229%

Total non-markup income 13.327% 17.842% 24.385%

Non mark-up/ Intesrt Expense

Administrative Expenses 29.285% 28.125% 23.634%
Provisions against other assets 1.490% 1.921% 0.718%
Reversal of provision against balance sheet - -1.637% 0.103%
obligations
Other charges 0.125% 0.114% 0.064%

Total non-markup expense 30.901% 28.523% 24.519%

Loss/profit before tax -13.637% 27.127% 24.082%

Less: taxation -3.994% 10.755% 8.895%
Loss/profit after taxation -9.643% 16.372% 15.187%

Significant Points of Analysis:

Horizontal analysis:

Statement of financial position:

 Statement of financial position has improved overall.

 Total assets and liabilities are increasing at an increasing rate. Both increased
by 20 percent in 2017.
 Balances with other banks increased by 61 percent.
 Lending to other financial institutions increased by 112 percent.
 However, net assets have increased at a decreasing rate i.e. by 6 percent in
2017.
 Bills payable have reduced by 20 percent and borrowings have also been
reduced by 2 percent.
 Deposits have increased by 22 percent.
 Share capital has increased by 70 percent due to issuance of rights share.

Income statement:

 However, regardless of the increase of 16 percent in interest revenue profit

after taxes have been reduced by 168 percent.
 This loss can be explained by the increase in provision against non-performing
loans i.e. 132 percent.

Vertical analysis:

Statement of financial position:

 Advances contribute the largest part to the total asset i.e. 46 percent, followed
by investments that comprise of 37 percent of the total asset.
 However, liabilities are 95 percent of the total assets of which deposits have a
share of 85 percent.
Income statement:

 Net income from interest is 45 percent of the total interest income.

 However, provisions against non-performing loans are 41 percent of the total
interest income.
 Non-interest expenses are 30 percent of the total interest revenue, while non-
interest income is only 14 percent.

Critical Analysis
Overall view:
Bank of Punjab was nearly bankrupt in 2008 due to imprudent lending decisions of
the previous management. It had 84 billion of debt missing under fraud and public
looting under the ex-President Hamesh Khan. It had a CAR OF -14 percent/
Considering bank’s rapidly falling performance, State Bank of Pakistan relaxed some
of its policies for the bank (e.g. provisioning of non performing loans and CAR
requirements) and its management was changed; moreover, as the bank is backed by
government of Punjab, government provided assistance to the bank by lending money
to it. Under new management, Bank of Punjab was restructured and as a result it had
showed tremendous results over past few years. A lot have been invested on human
resource and technologies. Internal controls have been tightened and lending policies
have been reformed. Since 2012, its total assets increased by 96 percent, deposits
increased by 109 percent, current and saving accounts increased by 157 percent,
investments increased by 86 percent, shareholder’s equity increased by 150 percent,
net interest margin increased by 626 percent and its profit before tax increased by 473
percent in 2016.
Due to its tremendous results, Bank of Punjab took a step of deducting all of its
provision against non-performing loans in 2017 from the income due to which it
suffered a loss and its profits were reduced by 158 percent. However, its CAR was
was still 9.73 percent in 2017, and its required percentage was 11.275 percent.
Considering its capital management plan, SBP further relaxed the requirement. In
2017, it issued tier II capital i.e. its share capital was increased by 70 percent by an
issue of rights share; also, it issued term finance certificates of Rupees 4300 million.
Bank of Punjab’s success can be dedicated to the steps it took and also to the overall
growth of the banking industry of Pakistan in the last decade.

Proforma statements:

Assumptions and recent facts:

 Average growth rate of last 5 years have been taken in to account

 Bank of Punjab recently recovered 750 million rupees through NAB from its
missing debt.
 Consumers and investors have gained confidence as its deposits are increasing
and share prices have increased by 153 points over the last year.
 Bank of Punjab is now strictly following the framework and policies of State
Bank of Pakistan- all relaxations are released.
 Its capital adequacy ratio has reached 15 percent this year.
 Recently BOP has opened many new branches.
 It has launched a mobile application.
 9 months on unaudited financial statement shows:
 69 percent increase in profit before tax
 Earning per share has increased to 2.96 rupees.
 Advances have increased by 20 percent
 According to State Bank of Pakistan banking sector in coming years is
subject to slightly higher interest rates, external sector pressure, fiscal
sector vulnerabilities, growing domestic vulnerabilities and volatile
commodity markets. Despite all these SBP accepts banking sector to
remain stable. These factors might slower the growth rate but only by
some points.
 Political unstability and current relations with india might have an
impact on the industry.

Projections:
 Recommendation

Since technology and fintech is rtapidly taking over the banking industry, BOP needs
to implement changes as quickly as possible as recently it has just introduced mobile
applications. It is lagging behind other banks in technology. Also, it needs to keep on
updating its human resource’s skills and technical skills.
Also, it needs to maintain its CAR in coming years through different techniques such
as increasing retained earning, reducimg non markup expenses and increasing non
mark up income. It further needs to replace its riskier assets with safer ones. It also
needs to look after it lending criterias.