The Pakistan Credit Rating Agency Limited
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Abdul Wahab

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PACRA Maintains Rating of Bank AL Habib Limited | Tier-II TFC (TFC-VII)

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

The rating reflects the bank's improved performance, exceptional asset quality, satisfactory financial profile and healthy liquidity. The bank has solidified its relative positioning in the universe of large sized banks by improving its market share in terms of deposit base and advances book. The bank continued with its strategy for outreach expansion - adding significant branches every year. Cost to total income declined during the year. The benefits are expected to unfold in coming days. The bank’s strong mark up income was further augmented by enhanced fee commission and foreign exchange income. The strength of the bank is reflected in the high proportion of retail deposits in the total. Hence, concentration is low and risk is reduced. The Bank grew its customers deposit base higher than the sector’s growth. Trade finance is the bank's hallmark. The rating draws comfort from the bank's experienced management team, prudent risk management policies and deep rooted relationship with clients - borrowers as well as depositors. NPLs slightly inched up, however, strong coverage is a positive. The bank has issued additional Tier-I and Tier-II instruments, augmenting the bank's CAR and providing room for growth. The bank's CET-I improved to 9.98% as at end Dec-19 (end Dec-18: 9.04%), and Total CAR improved to 14.35% as at end Dec-19 (end Dec-18: 13.43%). Covid-19 has posed challenges to the banking sector, as almost all segments of the economy, worldwide and domestically, are getting negatively impacted. The ramifications would continue to unfold, warranting vigilance and timely actions where needed.
The rating is dependent on the bank's sustained risk profile. In the wake of heightened competition, profitable growth is a challenge while retaining the relative positioning in the industry. The equity base of the bank and CAR are satisfactory and may continually be enhanced.

About the Entity
BAHL, incorporated in Oct 1991, operates with a network of 755 branches /sub-branches, including 83 Islamic banking branches at end-Dec-19. BAHL has secured 6.2% share in banking industry's customer deposits. The sponsors of BAHL are members of the Habib family - one of the oldest and most distinguished names in Pakistan's banking sector.
BAHL's ten-member BoD includes representatives of Habib family and independent members. Mr Mansoor Ali Khan, the bank's CEO, has been associated with the bank for more than 25 years. He is backed by a team of experienced professionals, most of whom have long association with the bank.

About the Instrument
TFC V was issued in Mar-16 at 6M-KIBOR Plus 75bps p.a. payable semi-annually in arrears. The tenor of this instrument is 10 years, callable from Mar-21 or thereafter with prior approval of SBP.
The TFC-VI (Tier-I debt instrument issued in December 2017) is an unlisted, unsecured, subordinated, perpetual and non-cumulative instrument. The instrument is of PKR 7,000mln whereas the profit rate is 6M KIBOR plus 150 bps p.a.
BAHL has issued TFC-VII in December 2018, which is an unlisted, unsecured and subordinated Term Finance Certificate. The instrument is of PKR 4bln, inclusive of Green Shoe option of PKR 1bln. The profit rate is 6M-KIBOR plus 100bps p.a. The tenor of instrument is up to 10 years and profit will be payable semi-annually in arrears on the outstanding principal amount.

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.