PACRA Maintains Debt Instrument Rating of Askari Bank Limited | Tier-II TFC (TFC-VII)

Askari Bank's 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 the correspondent relationship with 670 Banks in 88 countries around the world, focused on tapping new markets in Europe Southeast Asia, and the Middle East. In CY23, net markup income increased by 48.7% clocked at PKR 59.4 bln, with a substantial portion derived from investment earnings. As of Dec'23, Askari Bank experienced a 13% growth in its rock-solid deposit given its exclusive franchise, reaching PKR 1,293bln, with a predominant focus on savings deposits. However, the Bank's share of customer deposits decreased to 4.5% (from 5.1% in CY22). The Bank's strategic use of funding sources has supported its growth initiatives. Notably, there has been a substantial expansion in the Bank's loan portfolio, at the end of Dec'23 the gross advances stood at PKR ~661.3bln (CY22: PKR~ 614.9bln), accompanied by a significant increase in its investment book, which stood at PKR ~1,182.5bln majorly invested in Government securities compared to (CY22:762.6bln). The Bank's CAR improved to 18.35% (CY22: 15.9%). 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 660 branches as of Dec'23. Fauji Consortium is the key sponsor (71.91%) stake. The remaining (28.09%) shareholding is widely spread among financial institutions and the general public. Currently, overall control of the Bank vests in the eleven-member Board of Directors (BoD) including the President and CEO. Five of the board members are Fauji Foundation nominees; four are independent members, while one represents NIT. Mr. Atif Riaz Bokhari has resigned from the President & CEO of Askari Bank Limited. Currently, Mr. Saleem Anwar is the Acting CEO of the Bank.

About the Instrument
Askari Bank issued Tier-2 TFC-VII of PKR 6bln in Mar 2020 to contribute towards AKBL’s Tier II capital for complying with the CAR requirement. The TFC-VII (Tier 2) instrument is rated, DSLR listed, unsecured and subordinated as to the payment of principal and profit to all other indebtedness of AKBL, including deposits. The profit rate is 3 Month KIBOR + 1.2% and profit is paid quarterly in arrears on the outstanding principal amount. The tenor of the instrument is 10 years. The principal is to be paid in four equal quarterly installments. Neither profit nor principle 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 AKBL has paid the profit payments of Tier-II TFC due on Jun 15, 2024 next payment is due on Sept 15, 2024.