PACRA Maintains Rating of TFCs of Askari Bank Limited

The rating reflects relative positioning of the bank, driven by AKBL's strong ownership structure whereby Fauji Foundation Group - an established business conglomerate with strong financial muscle - holds majority stake. The bank has continued the growth trajectory in 2017. The cost of funding is witnessing continuous reduction due to growth in low cost deposits. The profitability in the banking sector is a challenge due to maturity of high yielding PIBs. Volumetric increase in earning assets, led by loan portfolio augmentation, provided support to profitability; along with constant flow of recoveries and reversals. Expansion in branch network has led to increase in expenses, yet benefit can be seen in the form of deposit growth. Meanwhile, noticeable improvement was observed in asset quality as net accretion to NPLs curtailed significantly and is supplemented by comfortable liquidity position. The bank's CAR is 12.1% at end-Dec17, the management is cognizant of the need of further augmentation in capital and is thus issuing a ADT 1 instrument (PKR 6bln inclusive of PKR 1.5bln of Green Shoe) to augment its CAR. Going forward, the management is eyeing CPEC as an opportunity to capitalize and build its business through a dedicated China Desk and Representative Office in China. This would be supported by extending outreach and on-going focus on generating non-funded income and mobilizing low-cost deposits.
The ratings are dependent upon continuous improvement in asset quality, whereas, effective management of spreads remains important. Meanwhile, notable improvement in CAR is crucial.

About the Entity
Askari Bank Limited, incorporated in 1991, operates with a network of 516 branches (at end-Mar18). The banks share in total customer deposits stood at 4.4% at end-Dec17. With change in ownership in 2013, Fauji Foundation (FF) emerged as the key sponsor (~72% stake). The remaining shareholding is widely spread.

The overall control vests in an eleven-member board of directors including the President. Five members represent FF, four are independent, while one is NIT nominee. Mr. Majeedullah Husaini resigned from the position of President & CE in Mar18.Following his resignation, the BoD appointed Mr. Saleem Anwar as Acting President & CE of bank. The BoD on 19th Jun 2018 appointed Mr. Abid Sattar as the new President and CE of Askari Bank Limited subject to clearance by State Bank of Pakistan.

About the Instrument
AKBL issued unsecured, subordinated, unlisted TFCs of PKR 1,000mln in Dec11. With ten years tenor, TFCs carry profit rate of 6M-K Plus 175bps payable semi-annually in arrears (till Dec16), and 6M-K Plus 220bps subsequently. Major principal repayment (99.7%) from Jan20-Dec21. SBP has granted approval to AKBL to recall the TFCs.

The bank is in the process of issuing Additional Tier 1 TFC with a size of PKR 6bln (inclusive of Green Shoe option).