Karachi, June 29, 2018 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the ratings assigned to both Tier-II instruments of Askari Bank Limited (AKBL) – 4th (fourth) Issue of Term Finance Certificate (TFC-IV) and 5th (fifth) Issue of Term Finance Certificate (TFC-V) at ‘AA-’ (Double A Minus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 30, 2017.
The assigned ratings incorporate association of AKBL with its primary shareholder, Fauji Foundation Group, a diversified conglomerate with strong financial muscle and presence in various sectors of the country. Operating as a mid-tier bank in Pakistan, AKBL enjoys a moderate footprint with a market share of around 4.3% both in domestic deposits and advances. After aggressive branch expansion pursued over the last few years, the bank largely consolidated branch network during FY17. The bank’s enhanced outreach is likely to provide positive impetus to revenues and profitability in the medium-term.The ratings also derive comfort from continuous improvement in asset quality and effective management of spreads.
The bank maintained a cautious advances growth strategy in order to conserve credit quality of loan book. Around 70% of the advances book comprised financing to private sector while the remaining were related to public sector entities. Corporate and commercial portfolio remained the main driver towards credit expansion constituting around two third of the advances book; meanwhile, growth was also supported by high yielding consumer segment. Going forward, the management plans to sustain low risk appetite while expanding business volumes with major focus on government backed infrastructure projects. Moreover, with inauguration of first branch at Gwadar Port Authority together with dedicated China-desk in Islamabad and representative office in Beijing, the bank has positioned itself to acquire CPEC related business, going forward.
Credit risk emanating from investment portfolio is considered manageable given the sizeable proportion of government securities. Although reduction in duration of PIBs portfolio has been witnessed, the bank remains exposed to related market risk in an increasing interest rate scenario. Cognizant of the fact, the bank has reduced exposure in government securities to a certain extent by end-1QFY18. While major equity exposure comprises blue chip companies, the bank remains exposed to market risk in a highly volatile stock market.
In view of deposit growth, AKBL pursued a consolidation strategy by reducing proportion of term deposits to improve deposit mix and manage spreads. Liquidity profile of the bank is supported by presence of sizeable liquid assets in relation to deposits and borrowings and low advances to deposit ratio. Despite increase in scale of operations and higher net reversals against non-performing loans, the bank’s operating and net profit remained largely stagnant mainly on account of lower gain on sale of securities. The non-markup recurring income stood higher in line with higher income from fee commission and foreign exchange dealings. As a result, efficiency (admin cost to income) improved slightly during FY17. Going forward, the bank’s primary focus will remain on mobilization of low cost deposits to ease pressure on spreads.
Capital Adequacy Ratio (CAR) stood lower at end-FY17; the same is lowest amongst top and mid-tier banks; on account of prevailing regulatory requirement, the bank may need strengthen its equity, going forward. The bank is in the process of raising ADT-1 capital. Subsequent to the resignation of previous CEO, the bank’s CFO assumed charge as an acting CEO in March’18. Recently, Mr. Abid Sattar, having considerable experience in the banking industry, has been appointed as CEO of the bank, subject to clearance by State Bank of Pakistan. Stability in senior management will play a pivotal role in effective implementation of the business strategy.
For more information, contact:
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi