BANKING

The Pakistan Credit Rating Agency Limited

RATING RATIONALE & KEY DRIVERS

RATINGS (JUNE 2013)

ALLIED BANK LIMITED [ABL]
ENTITY

NEW PREVIOUS
AA+
AA+
A1+
A1+

LONG TERM
SHORT TERM

TFC
Unsecured, Listed, subordinated

TFC II PKR 3,000MLN

AA

The ratings reflect demonstrated efficacy of ABLs strategy aimed at ensuring consistent profitability without
compromising quality of other key variables. The bank remains focused on strengthening its infrastructure and
improving quality of service pre-requisites to enhance market penetration in a competitive environment. The
ratings recognize the managements concerted efforts in sustaining the sound asset quality fortifying the
banks relative standing. The bank continues to leverage its expanded outreach for deposits growth, while
selectively expanding its advances portfolio, though it continues to have higher concentration.
The ratings are dependent on the banks ability to cement its relative positioning in the peer universe. At the
same time, continued cohesiveness and stability in the management team would ensure sustainability of the
improving trend. Meanwhile, strengthening of governance structure, augmentation of core income and
diversity of revenue stream, with simultaneous diversification in advances and deposit base would augur well
for the ratings.
ASSESSMENT
The landscape of the banking industry has significantly changed in comparison to last year. The prime reason
has been the sizeable cut in the policy rate by the State Bank of Pakistan. Induced by the cut, the industry
witnessed growth, albeit slight, in the finances towards the end of CY12. Having an ADR of ~52% (net of
provisions) at the industry level, there is significant room for finances growth. This depends upon the financial
discipline of the incumbent government and fresh demand from the business houses. The sentiments are
sanguine yet the solution lies in the sustainable resolution of structural issues faced by the country including
energy and security concerns.
During CY12, ABLs gross finances grew by 8.3%. While there was a reduction in the portfolio of debt
instruments, the growth mainly came from lending to corporates. Top 20 exposure concentration substantially
increased (CY12: 42%, CY11: 35%); after adjusting one single large govt. account, the ratio settles at 38%,
which is high in peer universe. At the same time, the deposit mobilization derive resulted in a significant
growth (28%), beating the industrys average (17.7%), exceeding the mark of PKR 500bln by Dec12. Herein,
the term deposits witnessed highest growth, diluting slightly CASA-to-total-deposit mix. This reflects ABLs
strategy of growth, while indicating the challenge the bank faces in mobilizing the low cost deposits.
Consequently, contribution of top twenty deposits went from 15% to 18% in CY12.
Net interest revenue (including dividend from money market mutual funds) increased by 7%. Although the
earning assets increased by 23%, the impact has been mitigated by fall in asset yield cut in policy rate.
Resultantly net spread declined YoY. While fee income slightly decreased, there was sizeable rise in gain on
sale of securities mainly equities which inherently carry a high market risk. The bank has a low presence in
the trade business compared to peers, though remittance business corresponds to its system share. The
operating expenses (non-personnel cost) increased inline with branch expansion; per branch expense remained
constant at PKR 7.7mln. Besides, the reduction in the provisioning expense YoY provided support to the
banks profitability. During 1Q13, net profit declined by 7% on YoY mainly due to cut in policy rate YoY.
The bank is enhancing focus on low cost deposits by leveraging on its branch network and utilizing new
initiatives like mobile banking, branchless banking and Islamic banking. Moreover, up gradation in IT
infrastructure would be used in providing value added services for its retail clientele. The bank's core banking
software, Temenos T-24, is being rolled out completely by end-Dec13. The technology driven advance MIS
reporting mechanism would augment overall control environment.
ABL witnessed negligible increase in non-performing loans. NPLs, as a proportion of gross finances, slightly
improved to 7.2%, and remained lower than most peers. Moreover, the bank has high loan loss coverage ratio
(end-Mar13: 86%). Going forward, limited fresh infections may not be ruled out.
The bank observed a sizeable increase of ~40% in the investment portfolio (PKR 258bln). The investment mix,
though remained dominated by Government securities, the bank mostly routed funds through money market
mutual funds of its subsidiary; this also brought tax benefit. These investments are partially financed through
borrowings from financial institutions. At end-Dec12, the portfolio is dominated by T-bills (80%), signifying
low credit and market risk, and PIBs (12%), with rest in equities (8%).
The banks capitalization improved on the back of consistent profitability and higher retention. However, the
banks equity-to-total-assets is lower than the peers signifying need for improvement. Herein, there has been no
improvement on YoY basis due to growth in assets and significant dividend payout.

AA

ABL LT ENTITY RATING HISTORY

AAA

AAA

AA+

AA+

AA

AA

AA-

AAJune
2009

June
2010

June
2011

June
2012

June
2013

FINANCIAL DATA
PKR (MLN)
1Q13*

Total Assets
Finances
NPLs
Equity
Net Income
Equity / Assets %
Loan loss coverage %
SBP CAR %

629,567
273,253
20,181

CY12

CY11

631,915 515,699
275,153 254,277
20,668 20.452

45,565

44,620

37,876

2,826

11,676

10,139

7.2
86.1
16.6

7.1
86.1
16.2

* Based on un-audited accounts

ANALYSTS
Muhammad Abdul Hayee
+92 42 35869504
Abdul.hayee@pacra.com
Amara S. Gondal
+92 42 35869504
Amar.gondal@pacra.com

7.3
86.6
13.4

PROFILE
Ibrahim Group (IG), through Ibrahim Fibers
Limited and family members, owns 80% of
shareholding in ABL. Apart from interest in
financial sector, IG is engaged in
manufacturing of yarn and polyester staple
fibre. Government of Pakistan (GoP) through
State Bank of Pakistan has around 10% stake
in ABL. ABL has a growing subsidiary
ABL Asset Management Company which
has AUM close to PKR 21bln as of end- TFCs Issues
May13.
Instrument
The
nine members BoD include three
directors from the sponsoring family, two
executive directors including the CEO, three
TFC-II:
independent directors and a nominee of GoP.
Unsecured,
subordinate
Mr. Tariq Mahmood, recently appointed as
CEO, has been associated with ABL for the
last six years at various senior roles. He is
TFC-I:
supported by a cohesive management team of
Unsecured,
experienced executives.
subordinate

Amount

3,000

2,500

June

June

2007

2008

Tenor
(Yrs) &
Maturity
10 yrs Aug-2019

8yrs Dec-2018

Instalment
frequency

Semi
annual

Semi
annual

Rate
6M
K+0.85%
(Yr 1-5)
6M
K+1.30%
(Yr 6-10)

Major Principal
redemption
0.38% - First 114
months,
99.62% - in 120th
month.

0.24% - First 72
months,
99.76% - in equal
6MK+ 1.9%
4 semi-annual
instalments

Call option
Call option on
any profit
payment date
starting 60th
month from issue
date
No call option
after 11th
redemption

O/S
principal
2996.4

2,494.0

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Tel: +92 (42) 35869504

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