Analyst
Saliha Sajid
saliha.sajid@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
PACRA Maintains Entity and Sukuk Ratings of AlBaraka Bank (Pakistan) Limited
Rating Type | Debt Instrument | |
Current (29-Dec-17 ) |
Previous (30-Jun-17 ) |
|
Action | Maintain | Maintain |
Long Term | A | A |
Short Term | - | - |
Outlook | Stable | Stable |
Rating Watch | - | - |
The ratings reflect ABPL's association with AlBaraka Banking Group – a strong Middle Eastern banking institution. Post-acquisition of Ex-Burj Bank and post-issuance of second Tier II Capital (Sukuk) both concluded favourably to bridge MCR gap and meet bank’s CAR as of Sep17. 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 pre-provisioning losses. Non-performing portfolio inherited from Ex-Burj creates a drag on equity and profitability. 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. The pivotal to this strategy is achieving profitability and hence generation of internal capital. Moreover, improving diversification in revenue streams, particularly from non-fund based avenues and maintaining healthy asset quality are important for bottom-line performance.
About
the Entity
ABPL is currently operating with a network of 186 branches. AlBaraka Islamic Bank B.S.C., the majority shareholder (~57%) in ABPL, is a subsidiary (91%) of AlBaraka Banking Group (ABG). The Board constitutes six representatives of sponsoring groups, one of minority shareholders and four 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 sukuk holders 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 10.0 % (end-Dec16; 10.3%, end-Dec15: 14.2%) provides limited cushion against the requirement.