The Pakistan Credit Rating Agency Limited
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Muhammad Jhangeer Hanif

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PACRA Maintains Instrument Rating of Bank Alfalah Limited | TFC V | Feb-13

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

The ratings reflect relative positioning of the bank among large banks of the country. The bank has a stronger position in advances - sustained by fresh deployments. The deposit system share has witnessed dilution as the bank embarked upon a strategy to sustainably rationalize its cost of funding with enduring focus on low cost deposits. Resultantly, BAFL's cost of fund is comparable to some of the large banks. The bank enjoys extended outreach across the country which has augmented its deposit base. Operating cost structure, though still higher than peers, has improved on YoY basis on account of cost rationalization. The asset quality of the bank has sustained over the past three years on account of prudent risk management. The bank witnessed changes in the key management positions. Effective implementation of the envisaged business strategy is important. Declining asset yield is being offset by cost efficiency hence, enabling spreads to be maintained at current levels. Despite consistent improvement in the bank's profitability, capital augmentation remained limited. Cognizant of the fact, the management recently issued Tier-I instrument to improve its capital, whereas, enhancing Tier-II capital through issue of a new instrument is also an option, which the bank can continue to avail from time to time.
The ratings are dependent on the improved positioning of the bank. Improvement in spreads is essential to profitability. Strengthening of the bank's capitalization backed by strong sponsors support and adding granularity to its advances and deposits book are essential.

About the Entity
Bank Alfalah Limited (BAFL) has a network of 630 branches, at end-Dec17, including 152 Islamic banking branches - one of the most extensive network by any conventional bank. Abu Dhabi Group (ADG), comprising some of the prominent members of UAE's ruling family and leading businessmen of UAE, continues to own majority stake (50.68% at end-March18) in the bank.

The nine-member BoD comprises President & CEO and seven NEDs, four of whom are representatives of ADG, one represents IFC, while three are independent. Mr. Nauman Ansari is the president of the bank. He carries extensive experience in the banking industry. A team of experienced professionals assist the CEO.

About the Instrument
BAFL has one unsecured and subordinated TFC in issue. TFC V of PKR 5bln, issued in Feb-13. With 8yrs of tenure, principal repayment of TFC-V would be repaid in bullet form at the time of maturity (Feb-21).

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.