The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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

Rating Type Debt Instrument
(25-Jun-21 )
(26-Jun-20 )
Action Maintain Initial
Long Term AA AA
Short Term - -
Outlook Stable Stable
Rating Watch - -

The bank has a strong brand image, flanked by its affiliation with one of the strongest conglomerate, Fauji Foundation Group. This represents strong ownership of the bank. This association has provided fruits in terms of market penetration, customer confidence, sustainable funding sources and avenues for generating mark-up and non-mark-up based income stream. Askari Bank has shown a stable growth rate over the years as evident by a significant increase of 54% in profit after tax in CY20. Volumetric increase in earning assets, led by investments provided support to profitability. CY20 proved to be a very prosperous year for the Bank in terms of both PBT and PAT. The net spread has increased on the back of lower cost of funds. The Bank increased its customer deposits by 16.2% to hold its market share intact at 4.7% (CY19: 4.7%). A noticeable rise is seen in both CA and SA, ultimately boosting CASA by a decent margin. In CY20, AKBL’s gross advances grew by 6.2% YoY and asset quality improved as the infection ratio decreased to 6.7% (CY19: 7.1%). The Bank's CAR stood at 15.5% at end-Dec20 were Tier 1 capital enhanced to 12.3%. The Bank has issued tier-II TFC of PKR 6bln which has enhanced its capital base, thereby boosting its lending capacity. COVID-19 is an ongoing challenge. While it has taken a toll on many businesses, its ramifications are still unfolding. The proactive measures are taken by the regulators and other concerning bodies have mitigated the potential damages much anticipated from this pandemic. As a result, the banking industry remained protected and in fact posted record profits. Vigilance is required as the loan repayment cycle remains amid variants of the pandemic continue to re-emerge.
The ratings are dependent upon the sustainability of the bank's relative positioning. The equity base of the Bank and CAR are satisfactory and may continually be enhanced. Meanwhile, holding the asset quality is a prerequisite.

About the Entity
Askari Bank Limited, incorporated in 1991, operates with a network of 537 branches as at end- Dec20. The banks share in total customer deposits stood at 4.7% at end-Dec20. Fauji Foundation (FF) is the key sponsor (~71.9% stake). The remaining shareholding is widely spread. Currently, overall control of the Bank vests in the eleven-member Board of Directors (BoD) including the President and CE. Five of the board members are Fauji Foundation nominees; four are independent members, while one represents NIT. Mr Abid Sattar is the President & CE of Askari Bank Limited. He is a seasoned banker with rich industry experience spanning over three decades. His term will expire on Aug 08, 2021. The bank will disclose the detail of the appointment of the new or acting CEO in accordance with the statutory requirement.

About the Instrument
AKBL issued a Tier-2 TFC-VII in March 2020 amounting to PKR 6bln(inclusive of a greenshoe option of PKR2bln) to boost its CAR. 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%. The tenor of the instrument is 10 years and profit is being paid quarterly in arrears on the outstanding principal amount. The principal is to be paid in 4 equal quarterly instalments. The call option on the instrument may be exercised on or after the 20th coupon payment (5 years), subject to approval of the SBP.

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.