Sohail Ahmed Qureshi
PACRA Assigns Initial Rating to TFC VII (Tier 2) of Askari Bank Limited
|Rating Type||Debt Instrument|
Askari Bank has shown stable growth rate over the years as evident by significant growth of 58% in profit after tax in CY19. The bank has a strong brand image, flanked by its affiliation with one of the strongest conglomerate, Fauji Foundation Group. The Bank has strong ownership. The Bank has continued its growth trajectory during CY19. The net spread has increased on the back of significant improvement in asset yield amidst higher cost of funds leading to enhanced profitability for CY19. Volumetric increase in earning assets, led by loan portfolio augmentation, provided support to profitability; but was impacted due to higher provisioning expense on mark-to market loss of investment. The bank recorded reversal in specific charge NPL provisioning during CY18 and CY19 which supported bottom-line.
The Bank's CAR is 13.38% at end-Dec19. The Tier 1 capital increased from 10.92% in 2018 to 11.53% in 2019 while the overall CAR improved by 87 basis points. The Bank has issued tier II TFC of PKR 6blnwhich has enhanced its capital base, thereby boosting its lending capacity. The Bank comfortably complies with statutory requirement of CAR as it stands at 13.9% as end-Mar20. The deposit growth was sizeable, enabling the bank to hold its relative position. Covid-19 has posed challenges to the banking sector, as almost all segments of the economy, worldwide and domestically, are getting negatively impacted. The ramifications would continue to unfold, warranting vigilance and timely actions where needed.
The ratings are dependent upon sustainability of the bank's relative positioning and continuous improvement in capital adequacy, whereas, effective management of spreads remains important. Meanwhile, holding the asset quality is a pre-requisite
Askari Bank Limited, incorporated in 1991, operates with a network of 535 branches (at end-Dec19). The banks share in total customer deposits stood at 4.66% at end-Dec19. Fauji Foundation (FF) is the key sponsor (~71.9% 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. Mr. Abid Sattar is the President and CE of Askari Bank Limited. He is a seasoned banker with rich industry experience spanning over three decades.
AKBL has issued Tier-2 TFC-VII in March 2020 to boost its CAR. The TFC-VII (Tier 2) is an unsecured, subordinated, rated and DSLR listed/Privately placed term finance certificate of PKR 6bln. The profit rate is 3 Month Kibor + 1.2%. The tenor of instrument is up to 10 years and profit will be payable quarterly in arrears on the outstanding principal amount and principal will be paid in 4 equal quarterly installments in year 10. The instrument carries a call option which may be exercised after 20th coupon payment (5 years), subject to approval of the SBP.