Bank Alfalah : VIS Reaffirms Instrument and Entity Ratings of Bank Alfalah Limited - Press Release issued by VIS Credit Rating Company Limited

June 30, 2020 (PPI-OT)

Following is the text of press release issued by VIS Credit Rating Company Limited

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VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Bank Alfalah Limited (BAFL) at 'AA+/A-1+' (Double A Plus/A-One Plus). Rating of BAFL's Basel 3 Tier-1 debt instrument has also been reaffirmed at 'AA-' (Double A Minus). Outlook on the assigned ratings is 'Stable'. The previous rating action was announced on July 2, 2019.

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 - which contributed 8.3% of the bank's pre-tax profits in 2019 (2018: 8.6%). The bank has operations across various business areas such as Asset Management (Alfalah GHP Investment Management), Insurance (Alfalah Insurance) and Brokerage (Alfalah CLSA Securities).

In 2019, BAFL resumed branch expansion, growing its branch network to 698, including 24 sub-branches (Dec'18: 649 branches, including 25 sub-branches). Akin to the industry, amidst an ongoing macroeconomic adjustment phase, a slowdown in lending was noted. As a result, with excess liquidity being channelled towards liquid assets, both liquidity and capitalization metrics have improved on a timeline. As of Mar'20, the bank's capital adequacy compared favourably to peers, while subsequent to improvement, liquidity indicators are considered adequate.

Akin to the industry, BAFL's asset impairment ratio has been impacted, with gross infection having risen from 3.6% (Dec'18) to 4.5% (Mar'20). As per management, this ratio incorporates the impact of subjective provisioning taken by the Bank based on prudence. Going forward, the oncoming pandemic-induced headwinds are expected to test portfolio asset quality. So far, SBP has taken notable measures to ensure continued credit supply to the economy and maintain confidence in the banking system. These measures are expected to delay the impact of prevailing headwinds on portfolio asset quality indicators. The operating environment remains precarious, amidst intermittent lock downs with no definite deadline. In view of the same, the full impact of the pandemic on the banking industry is uncertain.

BAFL's profitability indicators have improved on a timeline and compare favourably to peers. However, sector-wide profitability is expected to weaken on account of projected spread shrinkage, increased impairment, and lower fee income on account of depressed economic activity. In view of the same, the bank's capital adequacy is expected to slightly recede going forward. Nevertheless, capitalization buffers, built up over the past few years, are expected to provide adequate cushion to absorb projected impairment. Our credit impairment expectations are conservative, albeit downside risk is elevated, amidst an uncertain economic environment. VIS will continue to closely monitor the bank's performance metrics on quarterly basis.

For more information, contact:Director Compliance and Rating Analytics,VIS Credit Rating Company LimitedVIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,Phase VII, DHA, Karachi, PakistanTel: [phone]Fax: [phone]Email: [e-mail]: https://www.vis.com.pk/

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