PACRA Maintains Debt Instrument Rating of Bank Alfalah Limited | Additional Tier 1 TFC | 7bln

The ratings highlight the bank's improved performance, strong financial profile, good asset quality, and healthy liquidity. As a customer-centric bank with a focus on technological advancement, the Bank has a strong nationwide presence, enabling it to capture a significant share in ADC and digital transactions. With lower advances base and increase in subjective non-performing loans, the infection ratio stood at 5.4% at end-Sep’23 (CY22: 4%). While maintaining regular dividend payouts, the bank CAR improved to 15.50% (compared to 13.83% in CY22). The Bank has achieved a notable level of deposits, resulting in a Net advance to deposit ratio (ADR) of 49.3% as of end-Dec’22. The Net ADR declined to 36.5% at end Sep’23 due to reduction in advances. The cost of funds increased in line with industry trends due to the prevailing high policy rate for the year. The bank's profitability has reflected significant growth, with a 93.4% increase in profit after tax (PAT) in 9MCY23 as compared to the corresponding previous period. The effective implementation of the long-term business strategy, coupled with stable ownership, an experienced management team, prudent risk management policies, and improving its market position, provides confidence in the bank's performance.
The bank's growth trajectory, particularly in terms of nurturing its deposit base while enhancing granularity, is viewed positively.

About the Entity
Bank Alfalah (the "Bank" or "BAFL"), established in 1992, has undergone impressive growth to emerge as a prominent private commercial bank in Pakistan. With an extensive network spread over 225 cities in Pakistan, encompassing 942 branches (including conventional, Islamic, and foreign branches), ATMs, and CDMs/CCDMs. The majority ownership of BAFL lies with the Abu Dhabi Group, holding a stake of 56.16%. Other stakeholders include Mutual Funds, NBFCs, FIs, DFIs, individuals (43.70%), and executives (0.14%). The Abu Dhabi Group comprises prominent members of UAE's ruling family and leading businessmen with investments globally, including Pakistan, Bangladesh, and the Middle East.

About the Instrument
The Bank issued an Additional Tier-I Term Finance certificate amounting to PKR 7bln. The instrument is listed, unsecured, perpetual, non-cumulative and contingent convertible. The issue contributes towards supporting the Bank’s Capital Adequacy Ratio (CAR) by strengthening additional Tier-I Capital as per guidelines set by SBP. The mark-up is payable semiannually in arrears on the outstanding principal amount @6MK+1.5%. The TFCs may be recalled and replaced with similar or better-quality capital, subject to SBP approval, after five years from the issue date on the principal redemption date or thereafter, subject to call option condition. As per lock-in clause requirement, neither profit nor principal would be payable (even at maturity), if such payment will result in a shortfall in Bank's minimum capital requirement (MCR), leverage ratio (LR) or CAR or results in an increase in any existing shortfall in MCR, LR or CAR. The TFC is subject to a loss absorbency clause, which upon the occurrence of Non-Viability event, SBP may fully or permanently convert the TFCs into common shares of the Bank.