PACRA Assigns Preliminary Rating to TFC VI (Additional Tier 1) of Askari Bank Limited

The rating reflects relative positioning of the bank, driven by AKBL's strong ownership structure whereby Fauji Foundation Group - an established business conglomerate with strong financial muscle - holds majority stake. The bank has continued the growth trajectory in 2017. The cost of funding is witnessing continuous improvement due to healthy growth in low cost deposits. The profitability in the banking sector is a challenge due to maturity of high yielding PIBs. Volumetric increase in earning assets, led by loan portfolio augmentation, provided support to profitability; along with constant flow of recoveries and reversals. Expansion in branch network has led to significant increase in expenses, yet benefit can be seen in the form of deposit growth. Meanwhile, noticeable improvement was observed in asset quality as net accretion to NPLs curtailed significantly and is supplemented by comfortable liquidity position. The bank's CAR is 12.1% at end-Dec17, the management is cognizant of the need of further augmentation in capital and has a plan in place for improvement. Going forward, the management is eyeing CPEC as an opportunity to capitalize and build its business through a dedicated China Desk and Representative Office in China. This would be supported by extending outreach and on-going focus on generating non-funded income and mobilizing low-cost deposits. The rating of the instrument further incorporates the related clauses applicable under the Basel regime.

The ratings are dependent upon continuous improvement in asset quality, whereas, effective management of spreads, amid low interest rates scenario, remains important. Meanwhile, notable improvement in CAR is crucial.

About the Entity
Askari Bank Limited, incorporated in 1991, operates with a network of 516 branches (at end-Dec17). With change in ownership in 2013, Fauji Foundation (FF) emerged as the key sponsor (~72% stake). The remaining shareholding is widely spread.

The overall control vests in an eleven-member board of directors including the President. Five members represent FF, four are independent, while one is NIT nominee. Syed M. Husaini assumed the position of President & CE in June13 and is supported by an experienced and professional management team.

About the Instrument
The TFC-VI (Additional Tier 1) is an OTC, listed, unsecured, subordinated, perpetual and non-cumulative instrument. The instrument will be up to PKR 6,000 mln inclusive of a Green Shoe option of PKR 1,500 mln, whereas the profit rate would be 6M KIBOR plus 150 bps.