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Untitled Document Final PR
The Pakistan Credit Rating Agency Limited

Jhangeer Hanif

Muneeb Rashid

Applicable Criteria

  • Debt Instruments Rating Methodology (Jun 17) [View]
  • Correlation between long-term and short-term rating scale (Jun 17) [View]
  • Methodology | Bank Rating (Jun 17) [View]

Related Research

  • Sector Study | Commercial Bank (Jun 17) [View]
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PACRA Maintains Entity & TFCs Ratings of Bank Alfalah Limited
 Rating Type Entity Debt Instrument
 Action Maintain Upgrade Maintain Upgrade
 Long Term AA+ AA+ AA AA
 Short Term A1+ A1+  -
 Outlook Stable Stable Stable Stable
 Rating Watch - - - -

The ratings reflect relative positioning of the bank among large banks of the country. The bank has a stronger position in advances - sustained by fresh deployments. The deposit system share has witnessed dilution as the bank embarked upon a strategy to sustainably rationalize its cost of funding with enduring focus on low cost deposits. Resultantly, BAFL's cost of fund is comparable to some of the large banks. The bank enjoys extended outreach across the country which has augmented its deposit base. Operating cost structure, though still higher than peers, has improved on YoY basis on account of cost rationalization. The asset quality of the bank has sustained over the past three years on account of prudent risk management. The bank witnessed changes in the key management positions. Cohesion and effectiveness of the new team is essential for the sustained growth of the bank. Declining asset yield is being offset by cost efficiency hence, enabling spreads to be maintained at current levels. Despite consistent improvement in the bank's profitability, capital augmentation remained limited. Cognizant of the fact, the management intends to improve its Tier-I capital through multiple options, whereas, enhancing Tier-II capital through issue of a new instrument is also being considered, thereby creating cushion to regulatory capital. The bank is in the final stages of issuing Tier I instrument to replenish its capital adequacy. The ratings recognize demonstrated support of Abu Dhabi group (ADG) as a key factor.

The ratings are dependent on the management's ability to uphold its business profile; effective implementation of strategy is important. Sustaining spreads at current levels is a challenge, which needs to be effectively managed. Strengthening of the bank's capitalization and adding granularity to its advances and deposits book are critical for ratings improvement.
About the Entity
Bank Alfalah Limited (BAFL) has a network of 634 branches, at end-Sep17, including 151 Islamic banking branches - the biggest network by any conventional bank. Abu Dhabi Group (ADG), comprising some of the prominent members of UAE's ruling family, leading businessmen of UAE, continues to own majority stake (52% at end-Mar17) in the bank.

The eight-member BoD comprises President & CEO and seven NEDs, four of whom are representatives of ADG, one represents IFC, while two are independent. The BoD appointed Mr. Nauman Ansari as a director of the bank in place of Mr. Bajwa for the remainder of the term and appointed him as CEO of the bank.

About the Instrument
BAFL has one unsecured and subordinated TFCs in issue. TFC V of PKR 5bln, issued in Feb-13. With 8yrs of tenure, principal repayment of TFC-V would be repaid in bullet form at the time of maturity (Feb21).
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.