The Pakistan Credit Rating Agency Limited
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Muhammad Azmat Shaheen

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PACRA Maintains Ratings of Bank Alfalah Ltd. | TFCs | Series A

Rating Type Debt Instrument
(16-Feb-23 )
(16-Feb-22 )
Action Maintain Maintain
Long Term AAA AAA
Short Term - -
Outlook Stable Stable
Rating Watch - -

Bank Alfalah Limited ("BAFL" or the "Bank") is an active player in the lending market. Its presence around different segments of advances book is also meaningful. The ratings reflect the Bank's improved performance, good asset quality, strong financial profile and healthy liquidity. Asset quality declined as NPLs grew, increasing the infection ratio as well. In line with the Bank’s overall growth strategy, as on Sep'22, the net advances of the Bank have increased by 15.3% YoY basis, contributing to increase in Risk Weighted Assets; along with regular dividend payouts, thereby CAR stood at 14.49% as of Sep'22 (CY21: 14.43%), well above the Regulatory threshold. The bank's advances have improved, however, the ADR (Advances to Deposits) decreased to 53.8% as of Sep'22 (Dec'21: 59.2%). Policy rates are continuously rising in CY22 increasing the Bank's cost of funds. PAT of the Bank increased by 34.4% and stood at PKR 14.1bln during 9MCY22 (9MCY21: PKR 10.5bln). The rating draws comfort from the Bank's stable ownership, experienced management team, prudent risk management policies and distinct emphasis on improving the position. Going forward, macro-economic environment is beset with myriad challenges due to heightened interest rate, tightening of demand, rupee depreciation and higher infection.
The rating is derived on the basis of sovereign risk on the GoP issued securities. Further, the rating is also dependent on maintaining the Bank's capitalization backed by strong sponsors and adding granularity to its advances and deposits book are essential. Continued effective management of spreads remains important, meanwhile, holding the asset quality is a pre-requisite.

About the Entity
BAFL has a network of 857 branches, at end Sep'22, across more than 200 cities. Main sponsor comprises some of prominent members of UAE's ruling family and leading businessmen of UAE (49.79%) in the Bank. BAFL's BoD comprises 8 members including President & CEO and seven Non-Executive Directors, of which four of whom are representatives of sponsoring group. Mr. Atif Bajwa (President & CEO) carries an extensive international career spanning more than 39 years of executive leadership roles. Subsequent to the buyback of shares in Dec'22, the pattern of shareholding has changed.

About the Instrument
The Bank issued Rated, Secured, Listed, Redeemable Term Finance Certificates (TFCs), having total Issue Size of PKR 11bln. The tenor of TFC is 3 years bearing profit rate of 9.03% per annum, payable semi-annually in arrears on the outstanding principal amount, based on 365 days a year and on non-cumulative basis. Interim Coupon Payment equals to profit on investment amounts by each investor from date on which such investment amounts are received by Issuer until the date which is one day prior to Issue Date. The issued TFC is maintaining a strong lien over GoP issued securities - T-Bills, PIBs (Fixed & Floating). The maturity of the pledged securities is higher than the duration of the Instrument consisting of 10 Year PIBs (floater) (Issue Date: 9th August 2018, Maturity Date: 9th August 2028). The pledged securities are lien marked in favor of the TFC holders which is also mentioned in the Investor’s agreement and Prospectus. The charge on the pledged securities is registered with SECP. The Bank is smoothly paying markup profits while the principal would be paid at maturity date.

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.