Pubali Bank Rating Report of CRAB

PUBALI BANK LIMITED

BRIEF CREDIT RATING REPORT
Long Term Rating Awarded Date of Rating Validity RATING RATIONALE Credit Rating Agency of Bangladesh Ltd (CRAB) has assigned BBB3 (Pronounced Triple B Three) rating in the Long Term and ST3 rating in the Short Term to the Pubali Bank Limited (PBL) based on the broad branch network, superior deposit base and franchise value, average asset quality, average profitability, comfortable liquidity, capital adequacy, adequate provisioning, experienced management, and improving performance track. Commercial Banks rated in this category in the long term are adjudged to be solid banks, characterized by above average financials, valuable and defensible business franchises, and an attractive and stable operating environment reflecting into above average capacity for timely payment of financial commitments, with moderate likeliness to be adversely affected by foreseeable events. The short term rating reflects satisfactory capacity for timely repayment of obligations, although such capacity may be impaired by adverse changes in business, economic, or financial conditions. The bank has weaknesses in some areas though the management has the capacity to overcome the shortcomings with persistent effort. BACKGROUND & BUSINESS Pubali Bank Limited is the successor of the erstwhile Eastern Mercantile Bank Limited incorporated in 1959 under the Companies Act 1913. Eastern Mercantile Bank Ltd was nationalized under Bangladesh Bank's (Nationalization) Order 1972 and was renamed as Pubali Bank. It was denationalized on 30 June 1983 under the Bangladesh Bank's (Nationalization) Amendment Ordinance 1983. After being handed over to the private ownership and management, Pubali Bank consolidated its business and profitability and earned profits in the years 1985 to 1989. However with the increase in classified loans and advances especially to Govt. and Semi Govt. sector, and due to the implementation of the financial sector reform program of the Govt. in 1989 requiring strict classification provision, the Bank fell into catastrophe and started to incur loss. Through the efforts of the management, the Bank started making operating profit from 1994. In 1996 Bangladesh Bank identified Pubali Bank as a problem bank considering the capital inadequacy, provision shortfall, amount of classified loans etc and the Board signed a Memorandum of Understanding with the central bank to regularly report on the improvements in these areas. Pubali Bank has improved its performance in the recent years. On 30 June 2005 the bank had excess of provision maintained for loans and advances (also in FYE 2004), adequate capital adequacy of 10.76% (10.92% in FYE 2004) and classified loan 16% (18% in FYE 2004). With the improvement in performance Pubali Bank is expected to come out of its problem bank status in the near future. OPERATIONAL PERFORMANCE PBLs operating revenue decreased by 1% and operating expenditure increased by 16.76% in 2004. During this period, it enjoyed a pre-tax profit (before provision) of TK 624.91 million, which has decreased by 27.77% from TK 865.17 million of the preceding year. Sharp decrease in fee income (32% on last year) offset the high growth of net interest income and investment income during FY2004. This decrease is due to a change in accounting method Short Term BBB3 ST3 23 August 2005 6 Months

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CRAB Rating Report of Pubali Bank Ltd

st regarding revenue recognition of consumers credit. For the 1 half of FY2005, operating income was TK 1,382 million (growth at annualized rate of 20%) and operating expenses were TK 793 million (growth at annualized rate of 4.2%).

Key Performance Indicators

Pubali Bank Limited Net Interest Margin / average asset (%) Investment Income Yield Return on Average Assets (%) Return on Average Equity (%) Cost of fund Average Interest Yield 1H2005* 4.29 7.51 1.52 30.03 3.44 8.66 2004 3.34 8.34 0.54 11.03 3.44 7.78 2003 2.96 7.61 0.81 16.95 4.0 8.15 2002 2.81 8.02 1.79 41.62 4.35 8.52

(Million TK)
Peer AvgAAvera 2004 3.39 7.06 1.50 32.30 5.45 10.00

*Annualized PBLs profitability ratios were average compared to its peer banks in the industry (IFIC Bank, The City Bank, National Bank, AB Bank, Uttara Bank, Islami Bank & The Oriental Bank). For FY2004, PBLs return on average assets (ROAA) has dec reased further to 0.54 % from 0.81% in 2003. The return on average equity (ROAE) decreased to 11.03% in 2004 compared to 16.95% in 2003. In the first half of FY2005, PBLs profitability improved significantly as annualized ROAA and ROAE were 1.52 and 30.03 respectively which is comparable with peer average. The decrease in ROAA and ROAE for 2004 was attributed to reason mentioned above concerning revenue recognition method of consumers credit scheme .
Analysis of Total Income by Activities
Components of Income Net Interest Income Investment Income Fee Income Other Income Total Income 1H2005 (Mil TK) % 684.65 49% 207.71 434.47 58.62 1,385.45 15% 32% 4% 100% 2004 (Mil TK) % 984.26 46% 445.28 637.38 80.07 2,146.99 20% 30% 4% 100% (Million TK) 2003 (Mil TK) % 797.57 37% 355.53 936.21 79.44 2,168.75 16% 43% 4% 100%

PBLs net interest income increased by 23.40% in 2004 to TK 984.26 million (2003: TK 797.57 million). Its net interest margin on average assets improved in 2004 to 3.34% (2003: 2.96%), being comparable with the peer average. PBLs investment income increased from TK 355.53 million in 2003 to TK 445.28 million in 2004 (growth of 25%). Overall yield from investment increased to 8.34% in 2004 from 7.61% in 2003. Although the Banks fee income decreased by 32% in 2004 (due to change in accounting method), it showed a healthy annualized growth rate of 36% in the 1st half of 2005. PBLs surplus foreign exchange reserve enabled it to make a substantial profit in the inter-bank forex market.
Key Operating Cost Ratios of PBL
Key Ratios 1H2005 Efficiency (Cost-to-Income) Ratio (%) Personnel Expenses to Average Assets (%) Operating Expenses to Average Assets (%) Yield per Taka Staff Cost 57.31 1.82* 3.34* 136.60 Pubali Bank 2004 70.89 2.00 3.38 69.34 2003 60.11 1.81 3.05 112.15 2002 47.57 1.65 2.80 186.80 Peer Average 2004 55.54 1.67 2.89 152.75

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CRAB Rating Report of Pubali Bank Ltd

*Annualized In terms of costs, operating expenses increased by 16.76% in 2004 to TK 1 ,522.08 million (2003: TK 1303.58 million). Personnel expenses increased by 16.82% in 2004 to TK 901.20 million (2003: TK 771.42 million). Other non-interest expenses also increased by 16.67%, to TK 620.88 million from TK 532.15 million during the preceding period. PBLs operating cost ratios are improving to a comparable level with peer banks. CAPITAL ADEQUACY Banks Risk-Weighted Capital Adequacy Ratio (RWCAR) increased to 10.76% in 2004 compared to 9.83% in December 2003. The average capital adequacy ratio of the peer group is 10.16%. The Banks Tier-I RWCAR was 9.09% against the required 4.50% in 2004. The capital base is adequate-above the required capital of 9%.
Key Capital Adequacy Ratios
Pubali Bank Percentage (%) RWCAR Tier- I (core capital) CAR Tier- II (supplementary capital) CAR Shareholders funds to Total Assets SHs funds to Net Loans & Advances SHs funds to Deposits & Borrowings Net Asset Value per Share (TK) 1H2005 10.76 9.03 1.73 5.18 9.20 6.08 626.65 2004 10.92 9.09 1.84 4.95 9.05 5.78 1,153.88 2003 9.83 8.13 1.69 4.90 9.28 5.89 1,065.88 2002 7.17 1.36 5.81 4.63 8.91 5.73 970.41 Peer Average 2004 10.16* 8.11* 2.04* 4.94 8.72 5.86 1080.10

*Figures excluding Islami Bank ASSET QUALITY Total assets of PBL stood at TK 48.41 billion as on June, 2005 consisting of cash assets (19.40%), investments (11%), loans & advances (60.63%) with the remaining 8.96% being other assets. During FY 2004, PBLs total asset increased by 7.11% compared to that of FY 2003. This growth rate was 3.83% for the year 2003. The trend analysis shows that its total loans & advances increased by 4.79% in FY 2004 as against peer growth rate of 9.98% for the year. As per the bank, the reason behind the relatively low credit off-take has been a cautious approach taken by the bank and focus on recoveries from high level of NPAs in its consolidation phase. Also, the bank is primarily focusing on existing good borrowers and selective addition to client base for credit growth. Non Performing Loans (NPL) According to 2004 position, PBL had gross non-performing loans of TK 4,974.72 million (18.06%) against its total loans and advances of TK 27,232 million. From the table, it is found that gross NPL of the bank is coming down over the years. This reduction is attributable partly to substantial write-off of TK 3,246 million in the last two years and partly to cash recovery and upgradation. NPL Movement
2004 Opening Balance of NPAs Less : Cash recovery Less : written off Less : Upgradation Add : Inc. generation Closing balance Gross NPAs 7096.69 885.20 1600.33 693.30 1056.86 4974.72 2003 8843.89 954.60 1646.93 788.10 1642.43 7096.69 2002 7292.38 810.70 754.00 3116.20 8843.89

(Million TK)
2001 7601.45 891.60 723.20 1305.73 7292.38

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CRAB Rating Report of Pubali Bank Ltd

Fresh NPA Generation rate (Gross) NPA recovery rate

14.89% 12.47%

18.57% 10.79%

42.73% 11.11%

17.17% 11.72%

But high fresh NPA generation in the last few years is a cause of concern for the bank. Gross NPA ratio of PBL is higher than the peer group (15.13% as of December 2004) and similar to the total banking industry average for 2004 of 17.63%. Gross NPA for the Private Commercial Banks averaged at 8.53 % in 2004. Reasons for high default rate are found to be inadequate and incomplete appraisal, inadequate monitoring by branch officials, loans with public sector enterprises, politically-influenced agriculture loans etc. Peer Group Comparison on Gross & Net NPA
Pubali 1H2005 Gross NPA% Net NPA% NPA Coverage ratio Net NPA/Net worth 16.87 13.76 32.89 155.27 2004 18.06 15.03 30.52 172.93 2003 27.00 21.20 36.92 242.14 IFIC 2004 17.30 5.85 254.43 89.94 National 2004 14.25 10.62 61.68 120.33 The City 2004 10.57 5.32 75.68 60.37 AB 2004 11.37 9.48 31.35 126.98 Uttara 2004 22.15 18.59 25.16 189.83

Sectoral Exposure As per information provided by the bank, PBL is more exposed to commercial lending followed by industrial term loan and working capital loans. Although classified loan ratio is generally coming down, it is still high in some sectors like working capital, export and housing sectors. Provisioning for Losses on Loans & Advances PBL follows the same provisioning policy as prescribed by the BCD/BRPD Circulars of Bangladesh Bank. In the financial year ended 31st December 2004, there was required provision of TK 1,192.74 million out of which PBL kept provision for TK 1,192.74, resulting in a provision surplus of TK 7.14 million. FUNDING AND LIQUIDITY Pubali Bank has a satisfactory low cost deposit base through its large network of 350 branches throughout the country. Saving deposit s has been steadily dominating in the deposit composition in the previous years. However, compared to other banks in the peer group PBL is more dependent on short term funds. Though this has decreased the fund cost for the bank, it has impacted on the matching of asset liability maturity hindering the banks exposure to long term lending.
Growth of Deposits
Jun-05 8,553.20 18,384.95 14,097.57 41,035.72 Growth 9.47% 7.90% 2.31% 6.26% 2004 8,166.36 17,686.67 13,936.69 39,789.71 Growth 9.69% 11.17% 11.51% 10.98% 2003 7,444.76 15,909.76 12,498.08 35,852.60 (Million TK) Growth 4.52% 7.45% 5.91% 6.29%

Demand Deposit Savings Deposit Term Deposit Total

Peer Comparison of Deposit Mix (FY 2004)

Deposit Mix Current deposit Savings Deposit Term Deposit 2004 21% 44% 35% Pubali 2003 21% 44% 35% 2002 21% 44% 35% The City 15% 26% 60% ABBL 18% 30% 52% IFIC 16% 26% 58% NBL 18% 27% 55% Uttara 29% 39% 32%

Cost of funding of PBL in 2004 was 3.5% considering the interest expense only, which compares favorably with that of the industry and private banks averages (6.5% for all banks,

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CRAB Rating Report of Pubali Bank Ltd

5.6% for PCBs). Pubali has been advantaged through its low cost deposit base in maintaining the cost of fund below the industry rate. OFF-BALANCE SHEET PBLs off balance sheet liabilities increased highly in the first half of the year 2005. The outstanding letter of credit increased from TK 5.45 billion on FYE 2004 to TK 6.46 billion on 30 June 2005 (18.57% growth), in line with the overall L/C increase in the banking sector. Overall contingent liabilities increased by 30.90% in the first six months of the year increasing from TK 7.81 billion in FYE 2004 to TK 10.22 billion in June 2005. SWOT ANALYSIS Strengths
q q q q q

Broad deposit base with 350 branches and good franchise value Maintenance of Capital Adequacy Comfortable liquidity position Improvements in the performance in the recent years Experienced and well organized top and mid level management high level of non performing loans and inadequate credit management Low level of profitability, lower yield on assets Problem bank status of the bank Mismatch in asset liability maturity schedule Low level of automation (absence of SWIFT hampering L/C business) Large number of loss making branches HR policy not attractive enough to attract meritorious entries Micro credit financing through its broad branch network Introduction of more consumer banking products including credit cards Service to multinational and small private sector banks through its branch network Envisaged currency devaluation and shortcomings in foreign currency availability may impact on foreign currency exposure of the bank Changes in central banks policy regarding interest rate Exc essive competition from private banks, use of modern concepts and technologies in banking by competitors

Weaknesses
q Weak asset quality, q q q q q q

Opportunities
q q q

Threats
q q q

CONCLUSION Pubali Bank Ltd is the largest commercial bank of Bangladesh in the private sector. With the network of 350 branches and good franchise value the bank has access to low cost and stable deposits. Though the bank had been infected historically with low quality lending, the asset quality has improved significantly in the last five years. Gross non-performing assets of 18.06% in FYE2004 is a significant improvement from a few years ago but still is higher compared to the best performers in the industry. Banks profitability remains thin on account of low yield and high provisioning cost. Broad deposit base and cautious credit operation helps the bank in maintaining comfortable liquidity. Capital adequacy of the bank improved on account of sustained profit in the last three years. With the persistence efforts of the management, continued improvement in the asset quality, efforts in increasing profitability, incorporation of modern concepts and technologies of banking, and extension into more diversified banking activities, Pubali Bank is expected to emerge and consolidate its position as a very strong bank in the private sector.

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CRAB Rating Report of Pubali Bank Ltd

18.

CORPORATE INFORMATION

Year of Incorporation: 1959 (As Eastern Mercantile Bank) Denationalisation: 1983 (as Pubali Bank Limited) Board of Directors:
CHAIRMAN

Mr. E. A. Chaudhury
DIRECTORS

Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr.

Moniruddin Ahmed Sk. Wahidur Rahman Monzurur Rahman Giashuddin Ahamed M. A. Raquib Hafiz Ahmed Mazumder Syed Moazzem Hussain Ahmed Shafi Choudhury Fahim Ahmed Faruk Chowdhury Habibur Rahman Manir Ahmed Mohammed Yaqub Muhammad Faizur Rahman

Auditors: S.F Ahmed & Co., K.M. Alam, Khaleque & Co., and Syful, Shamsul Alam & Co. Listing: DSE (1984), CSE (1996) Management: Mr. Mr. Mr. Mr. Mr. Khondkar Ibrahim Khaled Helal Ahmed Chowdhury M. Rafiqul Islam Shahadat Hossain Chowdhury Md. Iqbal Hussain Chowdhury Managing Director DMD (Operation) DMD (General) DMD (Administration) Secretary

Capital History:
Year Authorised Capital (Million Taka) Issued, Subscribed and Paidup Capital (Million Taka) Rate of Increase Source of Capital

1984 1996 2000 2005

160.00 5000.00 5000.00 5000.00

160.00 160.00 200.00 400.00

25% 100%

IPO Bonus Share Issue Bonus Share Issue

19. 19.1

FINANCIALS Financial Statements

1H 2005 1,090.22 2,664.82 5,547.82 90.00 9,392.87 2004 2003 Amount in Million TK 1,054.78 981.82 2,473.59 2,120.06 4,818.62 3,765.70 710.00 1,150.00 9,056.99 8,017.58 2002 931.82 1,878.70 3,585.03 660.00 7,055.55

Balance Sheet Property & Assets Cash in hand Cash with Bangladesh Bank and SB Cash Balance with other Banks and FIs Money at call and short notice Total cash assets (A)

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CRAB Rating Report of Pubali Bank Ltd

Investments: In Govt Securities (B) Investments: In Other Securities (C) Total Investment (B)+(C) Loans, Cash Credit and Overdrafts Bills Discounted and Purchased Total Loans, Advances and Bills Land / Furniture / other fixed assets Other assets Non Banking Assets Total Assets other than cash (D) Total Assets (A)+(D) Contra Entries Acceptances and endorsements Letter of guarantee Letter of credit Bills for collection Other contingent liabilities Total Contra assets Total assets with contra Liabilities and Shareholders' Equity Inter-bank borrowing (A) Current deposit Bills payable Savings Deposit Term Deposit Total Deposits (B) Other Liabilities (C) Total Outside Liabilities (D=A+B+C) Issued and paid up capital Statutory Reserve General Reserves Retained earnings Profit & Loss account surplus Other reserves Stockholders' equity (F) Total liability and SHs' equity (E)+(F) Income Statement Interest/Discounts Income/Profit on Inv. (A) Interest paid on deposits and borrowing Net Interest Income (B) Income from investm ents Commission, Exchange & Brokerage Core Non-interest income (C) Other Operating Receipts Other Non-interest Income (D) Total Non-interest income (E)=(C)+(D) Total Operating Income (F)=(B)+(E) Salary, Allowances and provident fund Other operating expenses Total Operating Expenditure (G) Profit Before Provisions (F-G)

5,234.60 90.02 5,324.62 29,009.27 341.91 29,351.18 539.36 3,804.59 0.38 39,020.12 48,412.98

5,660.15 81.97 5,742.12 27,236.70 305.63 27,542.33 545.40 3,706.05 0.38 37,536.28 46,593.28

4,877.33 61.54 4,938.86 26,018.83 263.86 26,282.69 582.62 3,680.13 0.38 35,484.67 43,502.25

4,339.18 61.68 4,400.86 25,882.93 306.56 26,189.49 591.29 3,658.31 0.38 34,840.32 41,895.87

1,254.24 6,463.30 766.11 1,736.68 10,220.33 58,633.32

899.90 5,451.17 285.58 1,171.38 7,808.02 54,401.30

878.70 3,795.65 185.09 1,728.96 6,588.40 50,090.65

751.17 2,533.35 259.06 1,860.78 5,404.37 47,300.24

181.96 7,671.04 882.16 18,384.95 14,097.58 41,035.74 4,688.71 45,906.40 400.00 1,250.12 312.75 198.82 344.88 2,506.58 48,412.98 1H 2005 1,382.97 698.32 684.65 207.71 434.47 642.17 58.63 58.63 700.80 1,385.45 433.02 360.94 793.96 591.49

131.62 7,423.61 742.75 17,686.67 13,936.69 39,789.71 4,364.18 44,285.51 200.00 1,250.12 512.75

320.48 6,613.01 831.75 15,909.76 12,498.08 35,852.60 5,197.42 41,370.50 200.00 1,201.14 375.72

115.71 6,255.05 867.55 14,807.24 11,800.24 33,730.08 6,109.27 39,955.05 200.00 1,132.11 253.41

344.88 2,307.76 46,593.28 2004 2,292.59 1,308.33 984.26 445.28 637.38 1,082.66 80.07 80.07 1,162.73 2,146.99 901.20 620.88 1,522.08 624.91

354.89 2,131.76 43,502.25 2003 2,198.14 1,400.57 797.57 355.53 936.22 1,291.74 79.44 79.44 1,371.18 2,168.75 771.42 532.15 1,303.58 865.17

355.30 1,940.82 41,895.87 2002 2,152.42 1,443.45 708.97 343.52 1,241.20 1,584.72 86.43 86.43 1,671.15 2,380.12 668.00 464.29 1,132.29 1,247.84

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CRAB Rating Report of Pubali Bank Ltd

Less: Specific provision Less: General Provision Less: Reserve for devaluation of investment Less: Other Provisions Total Provision (Reserve) Net Profit Before Taxes Less Provision for Taxes Net Profit after Taxes

230.00 230.00 361.49 162.67 198.82

313.69 8.20 58.11 380.00 244.91 110.21 134.70

520.00 520.00 345.17 155.33 189.84

515.30 8.50 523.80 724.04 325.82 398.22

19.2

Key Ratios
Profitability 1H, 2005 1.52 30.03 57.31 4.29 0.00 99.41 4.51 31.36 7.51 2004 0.54 11.03 70.89 3.34 0.00 67.35 7.46 29.69 8.34 2003 0.81 16.95 60.11 2.96 0.00 94.92 8.71 43.17 7.61 2002 1.79 41.62 47.57 2.81 0.00 199.11 10.97 52.15 8.02

Return on Asset (Average Asset) Return on Equity (Average Equity) Efficiency Ratio Net Interest Margin Dividend Pay-out Ratio Earning Per Face Value Non-Interest Income Margin Fee Income to Total Operating Income Investment Income Margin Capital Adequacy Shareholders Fund to Total Assets Shareholders' fund to Deposits and Borrowing Internal Capital Generation Shareholders Fund to Net Loans & Advances Tier 1 Risk Weighted Capital Adequacy Ratio Risk Weighted Capital Adequacy Ratio Asset Quality Specific Loan Loss Provisions for Current Year Gross NPL Coverage Ratio Weighted Classified Loan Ratio Net NPL / Shareholder's Funds Net Loans & Advances To Total Assets Risk Weighted Assets / Balance Sheet Assets General Loan Loss Reserve Coverage Gross NPL Ratio Substandard Loan Ratio (3 Months Past Due) Doubtful Loans / Total Loans & Advances Bad-Loss Loans / Total Loans & Advances Net NPL Ratio (Shareholders' Fund + Provisions) / Gross NPL Specific NPL Coverage Loan Loss Reserve Coverage Capital Base to Gross NPL Funding & Liquidity Customer Deposits to Total Deposits & Borrowings Net Loans to Deposit Ratio Liquid Asset Ratio

5.18 6.08 17.69 9.20 9.03 10.76 0.81 32.89 15.94 155.27 56.29 49.45 0.83 16.87 1.12 1.30 15.06 13.76 76.60 27.08 4.54 52.04

4.95 5.78 15.48 9.05 9.09 10.92 1.17 30.52 16.87 172.93 54.71 46.35 0.82 18.06 1.81 0.93 16.04 15.03 70.37 25.17 4.51 47.42

4.90 5.89 18.04 9.28 8.13 9.83 1.98 36.92 26.13 242.14 52.81 50.22 0.77 27.00 2.23 1.16 25.10 21.20 59.81 33.81 8.48 30.25

4.63 5.73 32.18 8.91 1.36 7.17 2.07 38.90 32.95 323.93 51.98 65.13 0.74 33.77 1.44 4.48 30.43 26.60 52.68 36.59 11.17 22.11

96.53 66.41 35.71

99.67 64.07 37.07

99.11 64.08 35.82

99.66 64.56 33.85

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CRAB Rating Report of Pubali Bank Ltd

Savings Deposit / Total Deposits Customer Deposits / Total Liabilities Inter-bank Deposits to Total Deposits & Borrowings Net Inter-bank Assets/ Deposits Net Loans & Advances to Stable Funds Off- Balance Sheet Total Contingent Liabilities / Total Footings Off Balance Sheet Risk Weighted Assets / Risk Weighted Assets

44.80 86.67 0.44 0.44 63.04 17.43 26.57

44.45 89.85 0.33 0.33 61.04 14.35 21.45

44.38 86.66 0.89 0.89 61.13 13.15 19.46

43.90 84.42 0.34 0.34 61.80 11.43 13.79

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CRAB Rating Report of Pubali Bank Ltd

CRAB RATING SCALES AND DEFINITIONS

LONGTERM COMMERCIAL BANKS ENTITY RATING RATING AAA Triple A (Highest Safety ) DEFINITION Commercial Banks rated in this category are adjudged to be the strongest banks, characterized by excellent financials, healthy and sustainable franchises, and a first rate operating environment. This level of rating indicates exceptionally strong capacity for timely payment of financial commitments, highly unlikely to be adversely affected by foreseeable events. Commercial Banks rated in this category are adjudged to be very strong banks, characterized by very good financials, healthy and sustainable franchises, and a first rate operating environment. This level of rating indicates strong capacity for timely payment of financial commitments with very low likeliness to be adversely affected by foreseeable events. Commercial Banks rated in this category are adjudged to be strong banks, characterized by good financials, healthy and sustainable franchises, and a first rate operating environment. This level of rating indicates strong capacity for timely payment of financial commitments, with low likeliness to be adversely affected by foreseeable events. Commercial Banks rated in this category are adjudged to be very solid banks, characterized by above average financials, valuable and defensible business franchises, and an attractive and stable operating environment. This level of rating indicates above average capacity for timely payment of financial commitments, moderate likeliness to be adversely affected by foreseeable events. Commercial Banks rated in this category are adjudged to be solid banks, characterized by average financials, valuable and defensible business franchises, and an attractive and stable operating environment. This level of rating indicates average capacity for timely payment of financial commitments, high likeliness to be adversely affected by foreseeable events. Commercial Banks rated in this category are adjudged to be almost solid banks, characterized by nearly average financials, valuable and defensible business franchises, and an attractive and stable operating environment. This level of rating indicates below average capacity for timely payment of financial commitments. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favourable business and economic environment Commercial Banks rated in this category are adjudged to have adequate financial strength but maybe limited by one or more of the factors as: a vulnerable or developing business franchise; weak financial fundamentals; or an unstable operating environment. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favourable business and economic environment. Commercial Banks rated in this category possesses very weak intrinsic financial strength, requiring periodic outside support or suggesting an eventual need for outside assistance. Such institutions may be limited by one or more of the factors as: a business franchise of questionable value; financial fundamentals that are seriously deficient in one or more respects; or a highly unstable operating environment. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favourable business or economic developments

AA1, AA2, AA3* (Double A) (Very High Safety)

A1, A2, A3 Single A (High Safety )

BBB1, BBB2, BBB3 Triple B (Above Average Safety)

BB1, BB2, BB3 Double B (Average Safety)

B1, B2, B3 Single B (Below Average Safety)

C (Inadequate Safety)

D (Extremely Speculative)

* 1,2,3 refers to positive, average, and below average outlook in the short-term

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CRAB Rating Report of Pubali Bank Ltd

SHORT TERM COMMERCIAL BANKS ENTITY RATING Highest Grade ST-1 Commercial Banks rated in this category are considered to have the highest capacity for timely repayment of obligations. Banks rated in this category are characterised with excellent position in terms of liquidity, internal fund generation, and access to alternative sources of funds is outstanding. High Grade Commercial Banks rated in this category are considered to have strong capacity for timely repayment. Banks rated in this category are characterised with commendable position in terms of liquidity, internal fund generation, and access to alternative sources of funds is outstanding. Satisfactory Grade Commercial Banks rated in this category are considered to have satisfactory capacity for timely repayment of obligations, although such capacity may impair by adverse changes in business, economic, or financial conditions. Banks rated in this category are characterised with satisfactory level of liquidity, internal fund generation, and access to alternative sources of funds is outstanding. Adequate Grade Commercial Banks rated in this category are considered to have adequate capacity for timely repayment of obligations. Such capacity is more susceptible to adverse changes in business, economic, or financial conditions than for obligations in higher categories. Banks rated in this category are characterised with average liquidity, internal fund generation, and access to alternative sources of funds is outstanding. Below Average Grade Commercial Banks rated in this category are considered to have capacity for timely repayment of obligations susceptible to adverse changes in business, economic, or financial conditions. Banks rated in this category are characterised with risky position in terms of liquidity, internal fund generation, and access to alternative sources of funds is outstanding. Lowest Grade Commercial Banks rated in this category are considered to have Obligations which have a high risk of default or which are currently in default. Banks rated in this category are characterised with risky position in terms of liquidity, internal fund generation, and access to alternative sources of funds is outstanding.

ST-2

ST-3

ST-4

ST-5

ST-6

Disclaimer Clause: Information used herein is obtained from sources believed to be accurate and reliable. However, CRAB 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. Rating is an opinion on credit quality only and is not a recommendation to buy or sell any securities. All rights of this report are reserved by CRAB. Contents may be used by news media and researchers with due acknowledgement and credit to CRAB.

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