The Pakistan Credit Rating Agency Limited
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Muhammad Obaid

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PACRA Maintains Entity Ratings 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. Advances grew faster than the industry average, resulting in a very high ADR of ~71%, highest amongst its peers. Another reason for the hike in ADR was less than average growth in deposit base, though the mix of which improved. The Bank shed high cost deposits and added a few percentage points to the CA part of the CASA mix. Resultantly, BAFL's cost of funds is comparable to some of the large banks. The Bank has a sound foothold with a considerable presence across the country which has enabled its deposit base to increase. Operating cost structure has improved on YoY basis on account of cost rationalization. The Bank saw healthy uptick in its profitability. Overall infection ratio has reduced due to an expanded loan book, while the Bank has maintained its asset quality. Effective implementation of the envisaged business strategy is important. The increasing asset yield and cost efficiency enabled spreads to increase. The bank 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 Bank has continued its growth stride; continuation of the same is considered positive. Herein, augmentation of the Bank's capitalization backed by strong sponsors and adding granularity to its advances and deposits book are essential.

About the Entity
Bank Alfalah Limited (BAFL) has a network of 649 branches, at end-Mar19, 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% at end-Dec18) in the bank.
The nine-member BoD comprises President & CEO and eight Non Executive Directors, 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
Subordinated loan (TFC V Unsecured) with an issue size of PKR 5 bln was issued in Feb13. Tenor of the instrument is eight years (Feb21) with a profit rate of 6M-KIBOR plus 125bps, payable semi-annually. 0.30% of the principal will be repaid in the first 90 months and remaining principal of 99.70% at maturity in the 96th month.

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.