askari bank limited - pacra pack june15.… · the pakistan credit rating agency limited banking r...
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JUNE2015
The Pakistan Credit Rating Agency Limited
NEW [JUNE-15]
PREVIOUS [JUNE-14]
REPORT CONTENTS
1. RATING ANALYSES
Unlisted, Unsecured TFC (PKR 1,000mln)
AA- AA-
2. FINANCIAL INFORMATION
Outlook Stable Stable
3. RATING SCALE
4. REGULATORY AND SUPPLEMENTARY
DISCLOSURE
ASKARI BANK LIMITED
The Pakistan Credit Rating Agency Limited
BANKING
ASKARI BANK LIMITED (AKBL)
June 2015 www.pacra.com
RATING ANALYSES
(JUNE 2015)
ASKARI BANK LIMITED (AKBL)
TFCS ISSUES: AKBL currently has two unsecured and subordinated TFCs in issue with
total outstanding amount of PKR 5,000mln at end-Mar-15. TFC-IV of PKR 1,000mln
and TFC-V of PKR 4,000mln were issued in Dec-11 and Sep-14, respectively. During
May15, AKBL redeemed its TFC III of PKR 3,000mln by exercising the call option.
TFC-IV: The tenor of TFC-IV is ten years, having maturity in Dec 2021. The profit
rate is based on 6M-K Plus 175bps p.a. payable semi-annually in arrears for first five
years; subsequently at 6M-K Plus 220bps. Major principal repayment (99.7%) would be
payable during Jan-20 to Dec-21. AKBL retains the call option which may be exercised
after Dec-16, subject to approval of the SBP.
THE BANK
Asset Composition: During CY14, AKBL’s earning assets increased notably (17%)
mainly driven by significant growth (32%) in investment book. The growth was mainly
financed by a healthy rise in deposits. The bank’s ADR decreased to 44% at end-CY14
(end-CY13: ~49%); slightly lower than industry average. Top 3 sector exposures
marginally reduced to 24% (CY13: 26%), with predominant contribution from Textile
sector (~13%). Top 20 private sector clients’ exposure stood at 26% at end-CY14.
Asset Quality: During CY14, the bank’s NPLs witnessed a decline of PKR 1.7bln
due to sizeable cash recoveries in loss category NPLs. Hence, overall infection ratio
slightly improved to ~16% at end-CY14. Infection in private exposures (CY14: 23%,
CY13: 26%) is considered relatively higher than peer banks. Nevertheless, significant
provisioning against bad loans reflected strong coverage, in turn lower drag on equity.
Investments: Government securities (98%) continued to dominate the investment
book, followed by limited exposure in equity market, and fixed income funds. Although
nominal, AKBL also maintains strategic investments – Askari General Insurance
Company Limited (27%) – and two wholly owned subsidiaries – Askari Investment
Management Limited and Askari Securities Limited. In line with group strategy, the
bank has decided to exit from insurance business. The related process is expected to
complete in CY15. At the same time, the group plans to consolidate its brokerage
business – acquisition of Foundation Securities Limited. Meanwhile, Askari Securities
Limited will be merged into Foundation Securities Limited, under the ownership of the
bank. During CY14, bank built its PIBs book (CY14: 48%, CY13: 21%); given lower
exposure to long-term fixed rate bonds, interest rate risk is manageable.
Funding and Liquidity: During CY14, AKBL added PKR 59bln to its customer
deposit base representing 18% growth YoY. Top-20 depositors’ concentration reduced
to 23% (CY13: 26%); still higher than AA category banks. Given increasing focus on
branch expansion, the bank is likely to gradually add granularity in overall deposit base.
Bank’s liquidity position strengthened YoY (CY14: 59%, end-CY13: 53%).
Capital Adequacy: AKBL’s CAR stood at 13% at end-CY14. Redemption of TFC
III has reduced the CAR. Nevertheless, the bank has plans to strengthen its
capitalization through internal generation overtime.
Performance: During CY14, AKBL witnessed significant increase in net interest
revenue (38%) mainly on the back of volumetric increase in earning assets coupled with
improvement in asset yield. Substantial increase (48%) in non-markup income, mainly
emanating from equity market gains, and income from dealing in foreign currencies
further augmented the revenue base. Despite branch expansion, the bank managed to
limit its operational costs; cost to total net revenue declined from 78% in CY13 to 65%
in CY14. With considerable reduction in provisioning expense, the bank posted a net
profit of PKR 4bln in CY14 (CY13: loss of PKR 5.5bln).
Strategy: Going forward, the management’s focus is to continue strengthening its
deposit base by extending its branch network across mid and south regions (CY15
target: 102 new branches). Growth is expected to be maintained with focus on selective
lending – mainly low risk public sector. Management’s focus on operational efficiencies
is likely to keep performance healthy.
Profile: Askari Bank Limited, listed on all three stock exchanges, commenced its
operations in 1992. The bank operates with a nationwide network of 321 branches (at
end-Mar15). Fauji Foundation group is the major sponsor (~72% stake) of the bank. The
group has widespread business interests across different sectors of the economy.
Governance & Management: Overall control of the bank vests in eleven-member
board of directors including the President. Five members, representing FF, are seasoned
professional, four are independent, while one is NIT nominee. Syed Majeedullah
Hussaini assumed the position of CEO in June13. He is supported by an experienced
management team.
RATING RATIONALE The TFCs rating of AKBL reflects
the bank's strong association with
Fauji Foundation Group (FF). Post-
acquisition, FF has demonstrated
full commitment and support,
injecting sizeable fresh capital;
helping the bank to restore - indeed
improve - its standalone profile. The
bank, while sustaining its risk
profile, registered sound bottom-line
performance. The management
follows a multi-pronged strategy to
keep fortifying its business profile;
mainstays are i) volumetric increase
in earning assets - mainly
government securities - to improve
earnings, ii) selective credit
expansion - low-risk public sector
lending would remain in focus, iii)
recoveries from infected portfolio,
and iv) geographical diversification
in operational network, adding
granularity to deposit base.
Meanwhile, organizational
restructuring would continue. This
is likely to bring further efficiencies
in overall operational framework.
Adequate level of CAR, and strong
liquidity provide comfort to
financial risk profile of the bank.
KEY RATING DRIVERS The bank, aiming to improve overall
system share, is expected to sustain
its growth trajectory. Meanwhile,
focus on cost rationalization is
likely to support profitability.
AKBL has sizeable NPLs; the
recovery of which would favor risk
absorption capacity.
The Pakistan Credit Rating Agency Limited
Askari Bank Limited Financials [Summary]
PKR mln
BALANCE SHEET 31-Mar-15 31-Dec-14 31-Dec-13 31-Dec-12
Earning Assets
Advances (Net of NPL) 171,974 167,290 159,051 136,336
Debt Instruments 3,060 3,052 4,030 4,663
Total Finances 175,034 170,342 163,081 141,000
Investments 230,624 214,426 161,877 139,179
Others 19,818 14,914 15,582 17,684
425,476 399,681 340,540 297,862
Non Earning Assets
Non-Earning Cash 17,529 14,712 22,084 21,935
Deferred Tax 281 875 2,977 -
Net Non-Performing Finances 2,754 2,997 4,461 8,927
Fixed Assets & Others 25,525 28,817 24,765 24,302
46,088 47,401 54,287 55,163
TOTAL ASSETS 471,564 447,083 394,827 353,025
Interest Bearing Liabilities
Deposits 386,054 387,587 335,241 306,937
Borrowings 40,956 21,735 28,540 15,360
427,011 409,321 363,781 322,297
Non Interest Bearing Liabilities 19,769 14,054 12,317 11,158
TOTAL LIABILITIES 446,779 423,375 376,099 333,455
EQUITY (including revaluation surplus) 24,785 23,707 18,729 19,570
Total Liabilities & Equity 471,564 447,083 394,827 353,025
INCOME STATEMENT 31-Mar-15 31-Dec-14 31-Dec-13 31-Dec-12
Quarterly Annual Annual Annual
Interest / Mark up Earned 9,506 34,604 27,961 32,402
Interest / Mark up Expensed (5,981) (22,711) (19,363) (22,974)
Net Interest / Markup revenue 3,525 11,893 8,597 9,428
Other Income 1,588 5,317 3,598 4,117
Total Revenue 5,113 17,210 12,196 13,546
Non-Interest / Non-Mark up Expensed (2,886) (11,107) (9,533) (9,117)
Pre-provision operating profit 2,227 6,103 2,663 4,429
Provisions (327) (322) (11,103) (2,688)
Pre-tax profit 1,900 5,781 (8,441) 1,741
Taxes (640) (1,766) 2,961 (478)
Net Income 1,260 4,015 (5,480) 1,263
Ratio Analysis 31-Mar-15 31-Dec-14 31-Dec-13 31-Dec-12
Performance
ROE 26% 22% -32% 7%
Cost-to-Total Net Revenue 56% 65% 78% 67%
Provision Expense / Pre Provision Profit 15% 5% 417% 61%
Capital Adequacy
Equity/Total Assets 4% 4% 4% 5%
Capital Adequacy Ratio as per SBP 13% 13% 10% 12%
Funding & Liquidity
Liquid Assets / Deposits and Borrowings 60% 59% 53% 56%
Advances / Deposits 45% 44% 49% 47%
CASA deposits / Total Customer Deposits 80% 76% 75% 75%
Intermediation Efficiency
Asset Yield 9% 9% 9% 11%
Cost of Funds 6% 6% 6% 7%
Spread 4% 4% 3% 4%
Outreach
Branches 321 321 281 261
Askari Bank Limited
June 2015
Financials [Summary]
www.pacra.com
The Pakistan Credit Rating Agency Limited
STANDARD RATING SCALE & DEFINITIONS
LONG TERM RATINGS SHORT TERM RATINGS
AAA Highest credit quality. Lowest expectation of credit risk. Indicate exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
A1+: The highest capacity for timely repayment.
A1:. A strong capacity for timely repayment.
A2: A satisfactory capacity for timely repayment. This may be susceptible to adverse changes in business, economic, or financial conditions.
A3: An adequate capacity for timely repayment. Such capacity is susceptible to adverse changes in business, economic, or financial conditions.
B: The capacity for timely repayment is more susceptible to adverse changes in business, economic, or financial conditions.
C: An inadequate capacity to ensure timely repayment.
AA+
AA
AA-
Very high credit quality. Very low expectation of credit risk. Indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A+
A
A-
High credit quality. Low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be vulnerable to changes in circumstances or in economic conditions.
BBB+
BBB
BBB-
Good credit quality. Currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity.
BB+
BB
BB-
Speculative. Possibility of credit risk developing. There is a possibility of credit risk developing, particularly as a result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met.
B+
B
B-
Highly speculative. Significant credit risk. A limited margin of safety remains against credit risk. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment.
CCC
CC
C
High default risk. Substantial credit risk “CCC” Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. “CC” Rating indicates that default of some kind appears probable. “C” Ratings signal imminent default.
D Obligations are currently in default.
Rating Watch Alerts to the possibility of a rating change subsequent to, or in anticipation of, a) some material identifiable event and/or b) deviation from expected trend. But it does not mean that a rating change is inevitable. Rating Watch may carry designation – Positive (rating may be raised, negative (lowered), or developing (direction is unclear). A watch should be resolved with in foreseeable future, but may continue if underlying circumstances are not settled.
Outlook (Stable, Positive, Negative, Developing) Indicates the potential and direction of a rating over the intermediate term in response to trends in economic and/or fundamental business/financial conditions. It is not necessarily a precursor to a rating change. ‘Stable’ outlook means a rating is not likely to change. ‘Positive’ means it may be raised. ‘Negative’ means it may be lowered. Where the trends have conflicting elements, the outlook may be described as ‘Developing’.
Suspension It is not possible to update an opinion due to lack of requisite information. Opinion should be resumed in foreseeable future. However, if this does not happen within six (6) months, the rating should be considered withdrawn.
Disclaimer: PACRA's ratings are an assessment of the credit standing of entities/issues in Pakistan. They do not take into account the potential transfer / convertibility risk that may exist for foreign currency creditors. PACRA's 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.
Withdrawn A rating is withdrawn on a) termination of rating mandate, b) cessation of underlying entity, c) the debt instrument is redeemed, d) the rating remains suspended for six months, or e) the entity/issuer defaults.
Credit rating reflects forward-looking opinion on credit worthiness of underlying entity or instrument; more specifically it covers relative ability to honor financial obligations. The primary factor being captured on the rating scale is relative likelihood of default.
Rated Entity
Name of Issuer Askari Bank Limited
Name of Issue Askari Bank Limited | TFC
Sector Banking
Type of Relationship Solicited
Purpose of the Rating Regulatory Requirement
Independent Risk Assessment
Rating History Dissemination Date TFC Rating Action
30-Jun-15 AA- Maintain
30-Jun-14 AA- Maintain
5-Jul-13 AA- Maintain
14-Jun-12 AA- Maintain
3-Jan-12 AA- Initial
Instrument Details Nature of Instrument Size of Issue Tenor Trustee Security
Amortization Schedule See Annexure A
Specific Methodology: Banks Methdology [2005]
Research: Banking Sector Review -2014
Rating Analysts Saira Rizwan Rana Muhammad Nadeem
[email protected] [email protected]
(92-42-35869504) (92-42-35869504)
Rating Team Statement
Disclaimer PACRA maintains principle of integrity in seeking rating business.
Conflict of Interest
Surveillance
Prohibition
Probability of Default (PD)
Regulatory and Supplementary Disclosure
Related Criteria and Research
Reporting of Misconduct
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downgrade) in the rating.
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requires to do so.
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industry etc, is disseminated to the market, in a timely and effective manner, after appropriate consulation with the entity/issuer.
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if any, to the Compliance Office PACRA.
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is, however, not applicable on investment in securities through collective investment schemes. PACRA has established appropriate policies governing investments and trading
in securities by its employees
TFC
(Sub-ordianted, Unlsited)PKR 1,000mln 10 years Unsecured
Pak Brunei
Investment
Company
Limited
www.pacra.com
PACRA, the analysts involved in the rating process, and members of its rating committee do not have any conflict of interest relating to the credit rating done by them.
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from the entity.
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1,000,000,000
10 years
6MK + 1.75% (Dec11-16)
6MK + 2.20% (Dec19-21)
PKR mln
Installment Due Date Principal Mark Up Total Installment Outstanding
Dec-11 1,000
1 Jun-12 3.2 68 72 997
2 Dec-12 3.2 55 59 994
3 Jun-13 3.2 53 57 990
4 Dec-13 3.2 53 56 987
5 Jun-14 3.2 59 62 984
6 Dec-14 3.2 58 61 981
7 Jun-15 3.2 42 45 978
8 Dec-15 3.2 42 45 974
9 Jun-16 3.2 42 45 971
10 Dec-16 3.2 42 45 968
11 Jun-17 3.2 44 47 965
12 Dec-17 3.2 44 47 962
13 Jun-18 3.2 44 47 958
14 Dec-18 3.2 43 47 955
15 Jun-19 3.2 43 46 952
16 Dec-19 3.2 43 46 949
17 Jun-20 237.2 43 280 712
18 Dec-20 237.2 32 269 474
19 Jun-21 237.2 21 259 237
20 Dec-21 237.2 11 248 0
Call option exercisable
Regulatory and Supplementary Disclosure Annexure A