Press Release

VIS Reaffirms Instrument Ratings of Bank Alfalah Limited

Karachi, June 30, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the instrument ratings of Bank Alfalah Limited’s (BAFL) Basel 3 Tier-1 debt instrument at ‘AA-’ (Double A Minus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 30, 2020.

Ratings assigned to BAFL take into account strong profile of majority shareholder, Abu Dhabi Group, which is a diversified business conglomerate owned by the Abu Dhabi Royal Family. Furthermore, the ratings reflect BAFL’s established franchise in the domestic market, as well the bank’s overseas operations - situated in Bangladesh, Afghanistan, Bahrain and United Arab Emirates. The group companies include Asset Management (Alfalah GHP Investment Management), Insurance (Alfalah Insurance), Brokerage (Alfalah CLSA Securities) and Wind power sector (Sapphire Wind Power Company).

BAFL’s gross asset impairment ratio remained stable at 4.3% (2019: 4.2%) at end-2020 despite challenging credit environment due to COVID-19. In order to mitigate credit risk, the Bank provided for higher possible credit impairments amidst COVID-19, consequently its total provisioning coverage increased to 91.2% (2019: 83.6%) at end-2020. Given gradual revival noted in the ongoing year, infection ratios of the Bank improved at end-Mar’21. Credit and market risk emanating from the investment portfolio is considered manageable given around 83.5% of the investment base comprising federal government securities at end-Mar’21.

Overall liquidity risk of the institution, is considered manageable, in view of the sizable liquidity buffers. Deposit base of the Bank increased by 12.7% at end-20 with improving mix of CASA on a timeline basis. The bank’s profitability indicators declined in 2020 on the back of general provision recorded against restructured loans for COVID-19 relief scheme to mitigate credit risk. Net markup income of the Bank remained at prior year levels in 2020 given the impact of lower interest rates and certain COVID related constraints. Overall profitability profile of the Bank was supported by capital gains on federal government securities and exchange gains. The Bank is in an expansionary mode with focus on increasing branch footprints and digitalization. Given growth in admin expenses (led by higher staff related expenses, IT support fee, costs incurred to gear up on PPE for safety of staff and customers, impact of inflation, along with full year impact of opening new branches last year), efficiency ratio of the bank stood at 57.1% (2019: 52.8%) during 2020. The bank’s capitalization metrics remain strong vis-à-vis peers, as reflected by the comfortable capital adequacy buffer wherein both tier I and total CAR exceed the regulatory requirements (RR) at 12.71% (RR- 7.5%) and 16.53% (RR- 11.5%), respectively at end-2020.

For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext. 306) at 021-35311861-70 or email at .

Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Commercial Banks Methodology -June 2020

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited