The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Maintains Rating of Bank AL Habib Limited | Tier II TFC VIII | Sep-21

Rating Type Debt Instrument
(29-Jun-22 )
(24-Feb-22 )
Action Maintain Upgrade
Long Term AAA AAA
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings of the Bank reflect its enduring and sustained emphasis on reinvigorating its relative positioning in the peer universe. While the competitive landscape has been increasingly intensified, the Bank, under its able leadership, is taking measurable steps to remain competitive, indeed, improve its positioning. Bank AL Habib has been portraying a history of stable and consistent growth for more than a quarter of a century. The Bank's superior standing was witnessed in the global financial crisis almost a decade ago. The trend continued to this day and is reflected in the sound asset quality of the Bank. The Bank continued with its strategy for outreach expansion - adding significant branches every quarter to enhance geographical concentration. The rating reflects the Bank's improved performance, exceptional asset quality, strong financial profile and healthy liquidity. The Bank’s customer deposits increased to PKR 1,344bln as at end-Mar22 (endDec21: PKR 1,275bln, end-Dec20: PKR 1,083bln), subsequently, system share of the Bank enhanced (CY21: 6.5%; CY20: 6.4%). Advances base of the Bank recorded sizable increase to stand at PKR 747bln (CY21: PKR 734bln). CAR recorded dilution to 13.5% (end-Dec20: 15.1%). During CY21, the Bank’s net profit increased to PKR 18.7bln (Dec-20 PKR 17.8bln) driven by increase in non-markup income. During 1QFY22, the trend continued as Profit After Tax grew by ~8% YoY to stand at PKR 4.9bln. Trade finance is the Bank's hallmark. Going forward, the macro-economic environment is beset with myriad challenges due to heightened interest rate, tightening of demand, rupee depreciation and higher inflation. This has repercussions for all segments of the economy.
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. The Bank is enhancing its footprints in the broad financial spectrum, which is essential to meet customers' needs. Digital transformation is very important. BAHL is also into the acquirer business.

About the Entity
BAHL, incorporated in Oct 1991, operates with a network of 986 branches/sub-branches, including 142 Islamic Banking branches at end-Mar22. 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
BAHL issued a rated, unlisted, unsecured and subordinated TFC VIII in Sep-21 of PKR 5bln to contribute towards the AL Habib's Tier II Capital. The instrument is unsecured and subordinated as to payment of principal and profit to other indebtedness of the Bank, including deposits, but will rank pari passu with other Tier II instruments and superior to Additional Tier I instruments and common shares. The tenor of the instrument is 10 years and callable on or after five years with prior approval of SBP. The profit rate is 6M-KIBOR plus 75bps and is being paid semiannually in arrears on the outstanding principal.

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.