The Pakistan Credit Rating Agency Limited
Press Release


Muhammad Noor Ul Haq

Applicable Criteria

Related Research

This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

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

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

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.

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.