PACRA Maintain Entity Ratings of AlBaraka Bank (Pakistan) Limited

The ratings reflect ABPL's association with AlBaraka Banking Group – a strong Middle Eastern banking institution. During CY16, acquisition of Ex-Burj Bank concluded favourably to bridge MCR gap. However the bank’s CAR as of Mar17 stands at 10.1%, which is expected to improve post-issuance of second Tier II Capital (Sukuk) and improving profitability.
ABPL witnessed improvement in net spread on account of lower cost of deposit as ABPL shed high-cost deposits and enhanced contribution of CASA. Post-merger increased operational cost led ABPL to report negative bottom-line currently; profits are expected to ensue with the unfolding of envisaged management strategy. Non-performing portfolio inherited from Ex-Burj creates a drag on equity; though recoveries\reversals would aid the profits, going forward. A sizeable book of GoP securities in the investment portfolio helped maintaining adequate liquidity. Going forward, the management aims low cost deposit mix and cautious credit growth, in turn, better profits. Success in planned initiatives is crucial.
Effective implementation of business strategy, particularly in the back drop of challenging operating environment and competitive banking landscape, is important. Moreover, improving diversification in revenue streams, particularly from non-fund based avenues and maintaining healthy asset quality are important for bottom-line performance. The bank needs to improve its Tier I capital.

About the Entity
ABPL is currently operating with a network of 206 branches. AlBaraka Islamic Bank B.S.C., the majority shareholder (~57%) in ABPL, is a subsidiary (91%) of AlBaraka Banking Group (ABG). Currently bank is operating with a network of 206 branches.
The Board constitutes six representatives of sponsoring groups, one of minority shareholders and three independent directors. Mr. Shafqaat Ahmed - the CEO - is a professional banker having a long association with ABG since 1992. Mr. Nadeem Amjad Khan is Deputy CEO; he has been with the group for the last two decades. The management team comprises experienced professionals.

About the Instrument
ABPL issued an unsecured, subordinated and privately placed Sukuk of PKR 2,000mln. The Sukuk (issued in Sep14) has tenor of 7 years, with profit shared among sukukholders on 6MK+125bps basis. The principal repayments are being made semi-annually. Sukuk having right to redeem prior to maturity, subject to SBP's approval, carries a lock-in clause and is also subject to loss absorbency. Current CAR at 10.1 % (end-Dec16; 10.3%, end-Dec15: 14.2%) provides limited cushion against the requirement.