Research Analyst
8 - 14, 2010

The Bank of Punjab (BOP) is working as a scheduled commercial bank with its network of 272 branches at all major business centres across the country. The bank provides all types of banking services such as deposit in local and foreign currencies, remittances, and advances to business, trade, industry and agriculture.

The bank was established in 1989, in pursuance of The Bank of Punjab Act 1989 and was given the status of scheduled bank in 1994. A wholly owned subsidiary of BOP, First Punjab Modaraba (FPM) was established in 1992, and is managed by Punjab Modaraba Services (Pvt) Ltd.


Bank of Punjab has reported one of the biggest annual losses in the history of Pakistan's banking industry.

The BOP suffered the financial loss of Rs10.5 billion in 2008. This was a massive fall against the profit of Rs 4.44 billion in year 2007. NIB reported a loss of Rs 7.47 billion in 2008 and Saudi Pak Commercial Bank, now Silkbank Limited, incurred a loss of Rs 3.04 billion in 2007.


Profit or Loss (bn rupees) (10.5) 4.44
Earning per share (rupees) (19.02) 10.51
Gross interest income (bn rupees) 17.75 17.5
Net interest income (bn rupees) 1.3 3.5
Non mark income (bn rupees) 4.1 5.4
Provision against NPLs (bn rupees) 18.8 1.8
Administrative expenses (bn rupees) 2.7 2.25

A dismal performance could also be seen in other financial indicators such as earnings per share, gross interest income, net interest income, non interest income, provisions against non-performing loans (NPLs) and administrative expenses.

However, the biggest hit came from bank's provision against non-performing loans (NPLs) which surged multiple times to Rs18.8 billion from Rs1.8 billion in year 2007. NPLs are loans and advances, whose mark-up/interest or principal is overdue by 90 days or more from the due date.

Government of Punjab contributed Rs10 billion as advance subscription money towards proposed increase in the bank's paid up capital.


The Bank of Punjab signed an MOU with the Punjab government to provide SME financing facility to the engineering consultants/firms of government for managing infrastructure development projects at subsidized markup. As per MOU, BOP would provide financing facility to engineering consultants/firms up to Rs2 million for a period of 3 years where 50% markup would be paid by the Punjab government on quarterly basis and remaining 50% would be paid by borrower with principal through quarterly installments. The facility was to be provided to only those consultants/firms who would be awarded works by the provincial government.

BOP IN KSE (JAN 2010) (Rs)

4 19.5 20.46
5 20.46 20.85
6 20.85 20.49
7 20.49 20.11
8 20.11 19.82
11 19.82 20.05
12 20.05 19.8
13 19.8 19.65
14 19.65 19.64
15 19.64 19.98
18 19.98 19.8
19 19.8 19.62
20 19.62 19.84
21 19.84 19.19
22 19.19 19.25
25 19.25 18.81
26 18.81 18.31
27 18.31 18.01
28 18.01 17.49
29 17.49 17.75


During the period, the sector's advances growth remained lukewarm at 3% while average spreads during first 8 months in 2009 were recorded at 7.53% versus 7.11% in the same period of last year. However, non-interest income registered a decline of 5% to Rs61bn as against Rs64.2bn in 9M09 despite a significant 2.6-fold rise in capital gain to Rs 5.3bn. The sector's total provision and write-offs expenses arrived at Rs58.4bn as compared to Rs34.7 bn in the same period of last year, up by 68%.

Credit provisions swelled 54% to Rs49.3bn. Though the flow of fresh NPLs have started to slowdown, but the continuous downgrading of exposures forced the banks to book provisions in the 9M09 accounts. Moreover, the banks with higher exposure in consumer finance also wrote down the loans. As a result, debts written off directly also increased to Rs 5.2 bn from Rs 2.4 bn a year earlier.

On the other hand, provisions against pending diminution in value of investment were recorded at Rs 3.9 bn versus Rs 278 mn only in the last year's similar period. Administrative expenses grew 13% to Rs112.5 bn during the period under review due to persistent inflationary pressure. Consequently, the cost to income ratio of the sector has also moved up to 46% from 44.4% a year earlier.

The policy rate cut has been lower. However, a lower discount rate is expected to reduce the banking spread and affect the interest income earned by banks. Easing the monetary policy and favorable liquidity position reduced KIBOR and six-month Repo rate since April 2009. The demand for private sector credit has been declining sharply and a decline in the policy rate of 100 bps to 14% earlier in CY09 could not boost this dwindling demand. This was because slow economic activities hampered credit off-take and the banks also took a stance of risk aversion in the face of increasing NPLs. Lower interest rates and lower inflation in the future may reduce the NPLs and decrease the burden of provisioning on the banks.