Karachi, June 30, 2015 (PPI-OT):JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Askari Bank Limited (AKBL) at ‘AA/A-1+’ (Double A/A-One Plus). Ratings assigned to both instruments of AKBL – 4th (fourth) Issue of Tern Finance Certificate (TFC-IV) and 5th (fifth) Issue of Term Finance Certificate (TFC-V) – have also been reaffirmed at ‘AA-’ (Double A Minus). Outlook on the assigned ratings is ‘Positive’. The previous rating action was announced on February 18, 2015.
The ratings assigned to AKBL take into account the strong financial profile of the principal shareholder, Fauji Foundation Group (FFG) and the support extended to AKBL post acquisition. FFG is one of the largest business conglomerates in Pakistan with strong presence in various sectors of the economy.
Capitalization of the bank has improved on a timeline basis as reflected in an increase in Capital Adequacy Ratio (CAR), achieved both on account of profit retention and issuance of additional Basle III compliant tier-2 debt instrument. However, CET1 to risk weighted assets of 8.69% remains lower than peer group median of 10.25% while net NPLs in relation to tier-1 capital of 18.2% is higher than peer group median of 15.1%. Enhanced retention may be required to increase tier-1 capital, particularly to support growth as regulatory requirements increase with the onset of Basel 3.
During 2014, AKBL pursued a selective disbursement strategy towards high credit quality clients, along with a steady accumulation of exposure to the sovereign. Anticipated interest rate cuts triggered an industry wide accumulation of fixed rate PIBs. By end-14, the bank’s investment in PIBs increased by more than three folds.
During the outgoing year, the bank took measures to curtail cost of funding. The call option on relatively costly TFC-3 was exercised, with some costly deposits also being off-loaded by end-14. While cost of deposits was slightly higher than peer group, the management expects the measures taken to have a favourable impact on the same as depicted by a 26% growth in non-remunerative current deposits in 2014. Continued expansion in footprint may facilitate the bank in improving deposit mix and reducing deposit concentration.
Core earnings have depicted notable improvement in 2014 while bottom line has also posted complete turnaround. Profitability of AKBL is expected to remain healthy for 2015 and 2016. However, the bank may face redeployment challenges for funds from maturing PIBs if low interest rate scenario persists.
For more information, contact:
Ms. Sobia Maqbool
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi