PACRA Maintains Instrument Rating of AlBaraka Bank (Pakistan) Limited | Sukuk | Sep-14

The ratings reflect ABPL's association with AlBaraka Banking Group – a strong Middle Eastern banking institution. ABPL has largely managed to improve in spreads on account of increasing interest rate environment along with the high-cost deposits. A sizeable book of GoP securities in the investment portfolio helped in maintaining adequate liquidity. Going forward, the management aims low-cost deposit mix and cautious credit growth, in turn, better profits. Post merger, increased operational efficiency and branch level synergies are starting to pay dividends in the form of increasing profitability.
Effective implementation of business strategy, particularly in the backdrop of a challenging operating environment and competitive banking landscape, is important. Pivotal to this strategy is maintaining profitability and hence generation of internal capital. As of Sep-19, overall CAR of the Bank is reported at 11.93% which needs to reach 12.50% as on December 31,2019. Internal profit generation has improved, sponsors had injected USD 10mln in Dec-18 to support CAR requirement with a commitment to inject further amount on need basis. Improving diversification in revenue streams, particularly from non-fund based avenues and maintaining healthy asset quality are important for bottom-line performance. A recent accretion of NPL's is a concern.

About the Entity
ABPL is currently operating with a network of 192 branches (end-Sep19). AlBaraka Islamic Bank B.S.C., Bahrain the majority shareholder (59.13%) in ABPL, is a subsidiary (92%) of AlBaraka Banking Group (ABG). The Board constitutes six representatives of sponsoring groups and three independent directors. Mr. Ahmed Shuja Kidwai - the CEO - is a professional banker having a long association with ABG. Mr. Nadeem Amjad Khan is Deputy CEO; he has been with the group for the last two decades. The management team comprises of experienced professionals.

About the Instrument
ABPL issued an unsecured, subordinated, and listed Sukuk of PKR 2,000mln in Sep-14 to enhance cushion in capital adequacy. Profit rate is based on 6M-KIBOR plus 125bps p.a. and scheduled principal payments are payable semi-annually in arrears. ABPL retains the call option on the instrument, which may be exercised, in part or full, after five years (Aug-19) of issue, subject to SBP's approval.