The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Assigns Preliminary Rating to Bank Alfalah Ltd. | TFCs | Tranche I

Rating Type Debt Instrument
Action Preliminary
Long Term AAA
Short Term -
Outlook Stable
Rating Watch -

The rating of the TFCs reflect the supreme security structure of the Instrument. The Instrument shall be secured through lien over GoP issued securities - PIBs (Fixed & Floating). The maturity of the securities will match / be higher than the maturity of the Instrument. The securities marked under lien will be 105% of the issue, reflecting comprehensive coverage including any unforeseen fluctuation in prices. The Securities will be placed in SGL account maintained with the State Bank of Pakistan. The bank has entity ratings of “AA+/A1+”. The ratings of the bank reflect its strong positioning in the market. With this issuance, the bank is expected to boost the market of covered instruments. The bank is well positioned to benefit from the ensuing advantages. The bank’s ratings take comfort from its maintained advances book. The bank's advances has been maintained at a notable level. The mix of deposits improved as the bank added a few percentage points to the CA portion in the CASA mix. BAFL has a sound foothold with a considerable presence across the country, enabling its deposit base growth. The Bank has sustained good profit base. Overall infection ratio remained at the lower edge yet stable. Effective implementation of the envisaged long term business strategy will continue to play an important role in business growth. The rating draws comfort from the bank's stable ownership, experienced management team, prudent risk management policies and distinct emphasis on sustaining the position. Covid-19 has posed challenges to the banking sector, 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 bank has also formed a board level Corona Crisis Management Committee in order to formulate future strategies for diminishing the financial and business risks.
Augmentation of the Bank's capitalization backed by strong sponsors and adding granularity to its advances and deposits book are essential. Continued effective management of spreads remains important, meanwhile, holding the asset quality is a pre-requisite.

About the Entity
Bank Alfalah Limited has a network of 698 branches, at end-Dec19, across more than 200 cities in the country. Main sponsor Abu Dhabi Group (ADG), comprises some of the prominent members of UAE's ruling family and leading businessmen of UAE, continues to own majority stake (~49.03% at end-Dec19) in the bank. At present, BAFL's BoD comprises eight members including President & CEO and seven Non-Executive Directors, of which four of whom are representatives of ADG, one represents IFC, while two are independent. Mr. Atif Bajwa has joined the board as the President of the bank. He carries extensive international experience spanning 37 years of executive leadership roles in banking.

About the Instrument
The bank is planning to issue Listed, rated and secured fixed rate redeemable capital instrument in the nature of Term Finance Certificates up to PKR 50bln in multiple tranches. The first tranche will be PKR 10 Billion with Green Shoe option of PKR 5 Billion. The tenor shall be 3 years where rate is yet to be finalized. Profit will be payable semi-annually in arrears on the outstanding principal amount, based on 365 days a year and on a non-cumulative basis. The first coupon profit payment will fall due six months from the Issue Date and subsequently every six months thereafter. The Interim Coupon Payment shall be equal to the profit (at the Coupon Rate) on the investment amounts invested by each investor from the date on which such investment amounts are received by the Issuer until the date which is one day prior to the Issue Date.

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.