The Pakistan Credit Rating Agency Limited
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Faraan Taimoor

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PACRA Assigns Preliminary Rating to TFC VI of Bank AL Habib Limited

Rating Type Debt Instrument
Action Preliminary
Long Term AA
Short Term -
Outlook -
Rating Watch -

The rating reflects the bank's sustained performance, exceptional asset quality, satisfactory financial profile and strong liquidity. The bank has solidified its relative positioning in the universe of large sized banks with maintained share in the country's customer deposits. The bank continued with its strategy for outreach expansion - adding significant branches every year. The strength of the bank is reflected in the high proportion of retail deposits in the total: concentration is low and hence risk is reduced. Trade finance is the bank's hallmark, yet the bank is building alternative revenue streams, while exploring opportunities in CPEC related projects. The rating draws comfort from bank's experienced management team, prudent risk management policies and deep rooted relationship with clients - borrowers as well as depositors. The instrument rating takes fundamental comfort from the bank’s current reported CET1 (Dec 2016: 10.6%).

The rating is dependent on the bank's sustained risk profile. In the wake of heightened competition, profitable growth is a challenge while retaining the relative positioning in the industry. The CET1 ratio of the bank is expected to remain aligned with the existing financial strength of the bank, going forward.

About the Entity
BAHL, incorporated in Oct 1991, operates with a network of 637 branches /sub-branches end-Sep-17. The sponsors of BAHL are members of the Habib family - one of the oldest and most distinguished names in Pakistan's banking sector.

BAHL's ten-member BoD includes four representatives of Habib family and three independent members. Mr Mansoor Ali Khan, the bank's CEO, has been associated with the bank for over twenty years. He is backed by a team of experienced professionals, most of whom have long association with the bank

About the Instrument
The banking landscape in Pakistan is witnessing, for the first time, issuance of a Tier I debt instrument: The TFC-VI is an unsecured, subordinated, perpetual and non-cumulative instrument. The instrument will be up to PKR 7,000 mln inclusive of a Green Shoe option of PKR 2,000 mln, whereas the profit rate would be 6M KIBOR plus 150 bps. The TFC is unique as it would supplement the bank's Tier I CAR. Tier I TFC is differentiated from Tier II in two key aspects: (i) It is perpetual & (ii) It is non-cumulative. Furthermore, upon reaching a pre-defined trigger point or point of non-viability (PONV), the Tier I TFC may be partially or fully converted into equity/written off as per the discretion/instructions of SBP (vide Annexure 5, BPRD Circular No. 6 of 2013).

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.