PACRA Assigns Preliminary Rating to TFC VII (Tier 2) of Askari Bank Limited
|Rating Type||Debt Instrument|
Askari Bank has shown stable growth rate over the years. This has ensured its relative profitability to remain intact. The bank has a strong brand image, flanked by its affiliation with one of the strongest conglomerate, Fauji Foundation Group. The ownership structure has proven itself a strong backing, as reflected by Askari Bank's history. The Bank has continued the growth trajectory during 9MCY19. The net spread has inched up on the back of significant improvement in asset yield amidst higher cost of funds leading to enhanced profitability for 9MCY19. Volumetric increase in earning assets, led by loan portfolio augmentation, provided support to profitability; but was impacted due to higher provisioning expense on mark-to market loss of investment and NPL provisioning. The bank recorded reversal in specific charge NPL provisioning during CY18 and 9MCY19 which supported bottom-line.
The Bank's CAR is 12.73% at end-Sep19. The Tier 1 capital increased from 10.92% in 2018 to 11.25% in 9M2019 while the overall CAR improved by 22 basis points. The Bank is issuing tier II TFC of PKR 7bln inclusive of PKR 2bln green shoe option which will enhance its capital base, thereby boosting its lending capacity. Additionally, the Bank will comfortably comply with statutory requirement of 12.5% CAR as at end-Dec19. The deposit growth was sizeable, enabling the bank to hold its relative position.
The ratings are dependent upon sustainability of the bank's relative positioning and continuous improvement in capital adequacy, whereas, effective management of spreads remains important. Meanwhile, holding the asset quality is a pre-requisite
Askari Bank Limited, incorporated in 1991, operates with a network of 517 branches (at end-Sep19). The banks share in total customer deposits stood at 4.4% at end-Dec18. Fauji Foundation (FF) is the key sponsor (~71.9% 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. Abid Sattar is the President and CE of Askari Bank Limited. He is a seasoned banker with rich industry experience spanning over three decades.
AKBL is planning to issue Tier-2 TFC-VII during the year to boost its CAR. The TFC-VII (Tier 2) will be an unsecured, subordinated, rated and DSLR listed/Privately placed term finance certificate of upto PKR 7bln, inclusive of Green Shoe option of PKR 2bln. The profit rate is 3 Month Kibor + 1.2%. The tenor of instrument is up to 10 years and profit will be payable quarterly in arrears on the outstanding principal amount and principal will be paid in 4 equal quarterly installments in year 10. The instrument carries a call option which may be exercised after 20th coupon payment (5 years), subject to approval of the SBP.