PACRA Maintains Rating of Askari Bank Limited | TFC VI (Additional Tier I) | July-18

Askari Bank's (“the Bank") ownership structure is distinguished, lending credence to its assigned rating. The Bank's solid brand reputation is notably bolstered by its affiliation with the Fauji Group conglomerate. In order to boost international trade and remittances, the Bank, by utilizing correspondent banking relationships in 72 countries, focused on tapping new markets in Europe, Southeast Asia, and the Middle East. During 9MCY24, the Bank's net markup income increased by approximately 7% to PKR 43.2bln (9MCY23: PKR 40.5bln, CY23: PKR 59.4bln) primarily driven by a ~27% increase in the investment book since Dec 2023, while advances declined by 24% due to the net retirement of short-term seasonal financing during the quarter ended Sep 2024. The Bank recognized a credit loss allowance of Rs. 1.2bln (9MCY23: PKR 690mln). Profit After Tax (PAT) largely remained relatively stable during 9MCY24, recorded at PKR 14.0bln (9MCY23: PKR 14.6bln, CY23: PKR 21.4bln). This consistency in PAT is influenced by several factors including higher costs of funds, alongside increased operating expenses stemming from the Bank's strategic branch expansion, investment in technology, and the impact of inflation. The deposit base of the Bank experienced a 9% growth during 9MCY24 reported at PKR 1.4trln (CY23: PKR 1.3trln), the growth is driven by 14% growth in CASA which constituted 88% of total deposits at the end of Sep 2024. The Bank is well capitalized with adequate buffers over regulatory requirements. The Bank's CAR improved to 21.19% (CY23: 18.35%). The management is actively pursuing initiatives to enhance business sustainability, with a focus on Islamic Banking and the expansion of Shariah- compliant product offerings.
The ratings depend on the Bank's ability to maintain its competitive position. Going forward, prudent management of funding costs is crucial and maintaining asset quality remains essential.

About the Entity
Askari Bank Limited, incorporated in 1991, operates with a network of 661 branches as of Sep 2024. Fauji Consortium is the key sponsor (71.91%) stake. The remaining (28.09%) shareholding is widely spread among financial institutions and the general public. The Bank is governed by a ten member Board of Directors (BoD). Currently, Mr. Saleem Anwar is the Acting President & CEO of the Bank.

About the Instrument
Askari Bank issued TFC VI Additional Tier I (TFCs), a PKR 6bln instrument in July 2018 to strengthen its Tier I capital and meet CAR requirements. The TFC is an OTC-listed, unsecured, subordinated, perpetual, and non-cumulative instrument, offering a profit rate of 6MK + 1.5%, payable semi-annually in arrears on the outstanding principal. Neither profit nor principal will be payable in respect of TFC if such payment results in a shortfall in the Bank’s MCR or CAR. The Bank may call the TFCs, with prior approval of SBP, after five years from the date of issue. The TFCs shall, if directed by the SBP, be fully and permanently converted into ordinary shares and/or have them immediately written off (partially or in full) upon the PONV Trigger Event. The Bank has paid the profit payment of Tier-I TFC due on July 03, 2024, next payment is due on Jan 03, 2025.