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

Askari Bank's (“the Bank") ownership structure is distinguished, lending credence to its assigned rating. The Bank's solid brand reputation is notably bolstered by its affiliation with the Fauji Group conglomerate. In order to boost international trade and remittances, the Bank, by utilizing the correspondent banking relationships in 72 countries, focused on tapping new markets in Europe, Southeast Asia, and the Middle East. During 9MCY24, the Bank's net markup income increased by approximately 7% to PKR 43.2bln (9MCY23: PKR 40.5bln, CY23: PKR 59.4bln) primarily driven by a ~27% increase in the investment book since Dec 2023, while advances declined by 24% due to the net retirement of short-term seasonal financing during the quarter ending Sep 2024. The Bank recognized a credit loss allowance of Rs. 1.2bln (9MCY23: PKR 690mln). Profit After Tax (PAT) largely remained relatively stable during 9MCY24, recorded at PKR 14.0bln (9MCY23: PKR 14.6bln, CY23: PKR 21.4bln). This consistency in PAT is influenced by several factors including higher costs of funds, alongside increased operating expenses stemming from the Bank's strategic branch expansion, investment in technology, and the impact of inflation. The deposit base of the Bank experienced a 9% growth during 9MCY24 reported at PKR 1.4trln (CY23: PKR 1.3trln), the growth is driven by 14% growth in CASA which constituted 88% of total deposits at the end of Sep2024. The Bank is well capitalized with adequate buffers over regulatory requirements. The Bank's CAR improved to 21.19% (CY23: 18.35%). The management is actively pursuing initiatives to enhance business sustainability, with a focus on Islamic Banking and the expansion of Shariah- compliant product offerings.
The ratings depend on the Bank's ability to maintain its competitive position. Going forward, prudent management of funding costs is crucial and maintaining asset quality remains essential.

About the Entity
Askari Bank Limited, incorporated in 1991, operates with a network of 661 branches as of Sep 2024. Fauji Consortium is the key sponsor (71.91%) stake. The remaining (28.09%) shareholding is widely spread among financial institutions and the general public. Currently, overall control of the Bank vests in a ten member Board of Directors (BoD). Currently, Mr. Saleem Anwar is the Acting President & CEO of the Bank.

About the Instrument
Askari Bank issued Tier-2 TFC-VII ("TFCs" or the "Instrument") worth PKR 6 billion in March 2020 to strengthen its Tier II capital and comply with CAR requirements. This DSLR-listed, rated, unsecured, and subordinated instrument carries a profit rate of 3M KIBOR + 1.2%, payable quarterly in arrears. The 10-year tenor instrument features principal repayment in four equal quarterly installments. Neither profit nor principal will be payable in respect of TFCs if such payment results in a shortfall in the Bank’s LR, MCR or CAR. The Bank may call the TFCs, with prior approval of SBP, after five years from the date of issue. The TFCs shall, if directed by the SBP, be fully and permanently converted into ordinary shares subject to a cap of 245,042,630 shares and/or have them immediately written off (either full/partial) upon the PONV Trigger Event. The Bank has paid the latest profit payment of Tier-II TFC due on 17 Dec 2024.