VIS Reaffirms Entity Ratings of Zarai Taraqiati Bank Limited - Press Release issued by VIS Credit Rating Company Limited.

Karachi -- June 30, 2020 (PPI-OT)

Following is the text of press release issued by VIS Credit Rating Company Limited

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VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ZTBL at 'AAA/A-1+' (Triple A/A-One Plus). The medium to long-term rating of 'AAA' denotes highest credit quality, with negligible risk factors, being only slightly more than for risk-free debt of Government of Pakistan (GoP). The short-term rating of 'A-1+' denotes highest certainty of timely payment, liquidity factors are outstanding and safety is just below risk-free short-term obligations of Government of Pakistan. Outlook on the assigned ratings is 'Stable'. The previous rating action was announced on June 26, 2019.

The ratings assigned to ZTBL take into account the implicit support of GoP being the sole shareholder of the bank and its guarantee on the deposits of the bank. The ratings incorporate the fundamental role of ZTBL in the overall ecosystem of the country since the bank remains the principal development financial institution used as an agricultural financing arm by GoP. However, the financial risk profile of the bank has been adversely impacted during the outgoing year owing incidence of sizable non-performing loans (npls) leading to substantial equity erosion.

The bank's profitability has also been severely affected by increasing provision requirement primarily as an outcome of progression of npls to subsequent loss categories. The ratings factor in improvement in liquidity profile and increasing trend in spreads; the latter is a function of change in loan pricing strategy, which now pertains to floating pricing regime as opposed to fixed pricing in previous years. It is expected that with Board of Directors becoming...