PACRA Upgrades the Rating of Bank Alfalah Limited | Additional Tier 1 TFC | 7bln

Bank Alfalah Limited (BAFL) has portrayed an impressive growth strategy ever since its inception around three decades ago. First attaining the position of a mid-sized bank, it is now in the league of large banks. With a PKR 2,085bln deposit base at end-Dec23, it boasted a competitive system share in customer deposits. The industry landscape is truly intensive and the management will have to take full cognizance of it to remain relevant and competitive in the new peer ratings. The ownership and governance of the bank are considered paramount support to the assigned ratings. The rating takes into account the robust management quality, prudent risk management policies, increasing penetration through digital channels, growing market share, diverse product suite, and successful execution of its strategic plans, as observed over a number of years. The gross performing advances increased to PKR 740bln, whereas the infection ratio clocked in at 4.8%. Nevertheless, the loan loss coverage ratio is over 112%, lending comfort against total delinquency. During CY23, the net profitability of the Bank notably doubled to PKR 36bln. The cost-to-income ratio improved to 41.8% as against 50% last year. At end-Dec23, the CAR improved to 16.7%. The ratings, on an overall basis, highlight the bank's improved performance, strong financial profile, overall good asset quality, and healthy liquidity.
The ratings are dependent on the continued compliance of the entity with ‘AAA’ parameters. Any weakening in these parameters will be considered negative.

About the Entity
BAFL was established in 1992. The majority ownership of the bank lies with the Abu Dhabi Group (sponsors of the Bank based in Abu Dhabi, UAE), with a stake of 56.16%. Other shareholders include Mutual Funds, NBFCs, FIs, DFIs, individuals (43.70%), and executives (0.14%). The Abu Dhabi Group comprises prominent members of the UAE's ruling family and leading businessmen with global investments. BAFL's board consists of eight members, including the President/CEO and seven non-executive directors, of which four represent the Abu Dhabi Group, and three are independent. Mr. Atif Bajwa, Bank's President & CEO, brings 40 years of executive leadership experience in the banking sector.

About the Instrument
The Bank issued an Additional Tier-I Term Finance certificate amounting to PKR 7bln. The instrument is listed, unsecured, subordinated, perpetual, non-cumulative and contingent convertible. The issue contributes towards supporting the Bank’s Capital Adequacy Ratio (CAR) by strengthening additional Tier-I Capital as per guidelines set by SBP. The mark-up is payable semiannually in arrears on the outstanding principal amount @6MK+1.5%. The TFCs may be recalled and replaced with similar or better-quality capital, subject to SBP approval, after five years from the issue date on the principal redemption date or thereafter, subject to call option condition. As per lock-in clause requirement, neither profit nor principal would be payable (even at maturity), if such payment will result in a shortfall in Bank's minimum capital requirement (MCR), leverage ratio (LR) or CAR or results in an increase in any existing shortfall in MCR, LR or CAR. The TFC is subject to a loss absorbency clause, which upon the occurrence of Non-Viability event, SBP may fully or permanently convert the TFCs into common shares of the Bank.