Taha Nouman

Obligor: Allied Bank Limited Group : Ibrahim Group Request: Date of Last Approval: Industry [as per TM]: Relationship Since: August 2004 Nature of Request Facility No.: 1 Facility Type: Term finance certificate issuance Previous Issue PKR 3,000 M (fully paid in Aug 2015) Current issue PKR 750 M Purpose: To meet capital adequacy Existing Security: Nil Proposed Security: Nil Maturity: Nov 2027(10 years) The Company: History: The bank began in 1942 in Lahore by the name Australasia Bank. In 1975, after the merger of few banks, and the nationalization in 1974, Allied Bank appeared. Allied Bank was the primary bank to be set up in Pakistan. As a result of capital remaking in August 2004, the Bank's possession was exchanged to a consortium involving Ibrahim Group who had offered most astounding offered of Rs. 14.2 billion for procurement of extra 325 million shares at the cost of roughly Rs. 43.69 for every offer (The Allied Bank story, 2004). Here after, it was bank was spoken as Allied bank constrained in 2005. Presently, with a practice of more than 70 years, the Bank depends on the establishment of solid value like strong equity, assets and deposits. While underscoring on retail managing an account, it now shares all inclusive keeping money administrations with system of more than 1100 branches and ATMs in Pakistan. The bank is putting forth to its different demographic with extensive variety of innovation based items and administrations. Management: Sponsors are actively involved in management of the company operations and are supported by highly qualified team of professionals led by an experience Board of Directors that has a blend of conservative management policies and technical knowledge. Details of the BOD are tabulated below: Name Designation Mr. Mohammad Naeem Mukhtar Chairman/Non-Executive Director Sheikh Mukhtar Ahmad Non Executive Sponsor Director Muhammad Waseem Mukhtar Non Executive Sponsor Director Mr. Tahir Hassan Qureshi CEO/Executive Director Mr. Sheikh Mukhtar Ahmad Non-Executive Director Mr. Abdul Aziz Khan Non-Executive Director Mr. Mubashir A. Akhtar Non-Executive Director Mr. Engr. Dr.Muhammad Akram Sheikh Independent Director Mr. Zafar Iqbal Independent Director Mohammad Naeem Mukhtar He is with ABL for the last 13 years. Earned his MBA degree from Cardiff Business School UK. Has an experience of 31 Years in both finance and engineering. Sheikh Mukhtar Ahmad Started his career after moving to Pakistan in 1947 and has contributed to the development of Pakistan through his various skills. Have an experience of 55 years in financial institutions. He is with ABL for the last 12 years. Mubashir A. Akhtar Have an experience of 50 years in the field of banking. He is actually a law graduate but his experience in banking has made him an expert in banking sector. He is at ABL for last 11 years. Tahir Hassan Qureshi A certified director from ICAP. He is with ABL for the last 9 years. Have an experience of 23 years and has worked with various banks at senior designations. Zafar Iqbal Formerly MD of Pak Oman Investment Company have an experience of 31 years in banking sector. Currently at ABL he is the independent Director. Shareholding Pattern is as follows:- Shareholding Pattern of Allied Bank Limited is as follows: Parent, Associated Companies, Undertakings and Related Parties Categories of Shareholder No. of shareholders Shares held Percentage % Ibrahim Holdings (Private) Limited 1 965,879,- Trustees of ABL Employees Superannuation 1 37,385,- Directors, Chief Executive Officer, and their spouse and minor children Mohammad Naeem Mukhtar- Sheikh Mukhtar Ahmed- Muhammad Waseem Mukhtar- Abdul Aziz Khan- Zafar Iqbal- Dr. Muhammad Akram Sheikh- Mubashir A. Akhtar & Taqdees Akhtar- Banks Development Financial Institutions, Non-Banking Financial Institutions Habib Bank Limited 1 3,926,- National Bank of Pakistan Limited 5 5,022,- Bank Al Habib Limited 1 377,- Soneri Bank Limited 1 534,- Bank Alfalah Limited 1 891,- The Bank of Khyber 1 150,- MCB Bank Limited 1 5,325,- First Women Bank Limited 1 25,- First Dawood Investment Bank Limited 1 8,- The Bank of Punjab 1 2,000,- Sindh Bank Limited 1 3,091,- Standard Chartered 1 22,- First Credit & Investment Bank Limited 1 20,- Escorts Investment Bank Limited- Trust Leasing Corporation Limited- Habib Metropolitan Bank Limited 1 582,- Al-FaysalInvesment Bank- NIT and ICP IDBL (ICP Unit- Investment Corporation of Pakistan 3 14,- Executives 1 308 0.0000 Other Employees 825 1,066,- Insurance Companies Premier Insurance Limited 1 96,- State Life Insurance Corporation of Pakistan 1 2,485,- EFU General Insurance Limited 1 120,- EFU Life Assurance Limited 1 3,549,- Alpha Insurance Company Limited 1 121,- Jubilee Life Insurance Company Limited 1 1,794,- Century Insurance Company Limited 1 36,- Habib Insurance Company Limited 1 12,- Adamjee Insurance Company Limited 1 2,773,- Gulf Insurance Company Limited- Orient Insurance Company Limited- Habib Insurance Company Limited 1 27,- Modarabas and Mutual Funds Descon Chemicals Limited Gratuity Fund- Modaraba Al Mali- First Fidelity Leasing Modaraba- MCBFSL - Trustee JS Value Fund 1 10,- CDC - JS Large Capital Fund 1 100,- CDC - AKD Index Tracker Fund 1 37,- CDC - NAFA Stock Fund 1 3,795,- CDC - NAFA Multi Asset Fund 1 299,- CDC - NIT-Equity Market Opportun 1 1,092,- CDC - Lakson Equity Fund 1 722,- CDC - NAFA Asset Allocation Fund 1 300,- CDC - Askari Equity Fund 1 15,- CDC - PIML Asset Allocation Fund 1 5,- CDC - Trustee Lakson Tactical Fund 1 96,- First TawakkalModaraba- CDC - ICI MSDC Superannuation Fund 1 35,- Foreign Investors Alpha Beta Finance Limited 1 221,- Russell INSTI Fnds PLC - ConsiliumInves 1 1,236,- RTCC EMP Benefit FDS TRT Russell Frontie 1 218,- Consilium Frontier Equity Fund LP 1 5,117,- Russell Investment Company- Russell Emer 1 938,- J.P. Morgan Securities PLC 1 57,- The Bank of New York Mellon- Fisher Investments Institutional Group 1 131,- Credit Agricole (Suisse) Hong Kong 1 56,- Mohammad Tahir Butt 1 3,- Habib Bank AG Zurich, Zurich, Switzerland 1 285,- Habib Bank AG Zurich, Deira Dubai 1 2,665,- TARIIC Holding Company BSC (Closed) 1 107,- Tundra Pakistan Fund 1 1,904,- Others General Public-Individual 18,611 42,210,- Others 159 46,023,- Grand Total 19,672 1,145,073,- Business Details: Allied Bank Limited is offering different accounts to its cooperate ,sole proprietor and individual customers such as allied bank business account ,PLS account ,current accounts basic banking accounts and also offering foreign currency account in dollars ,Japanese yen ,euro ABL also have a range of term deposits. Some of the other financial details like assets, liabilities of the bank and capital are given below: 5 year Financial Performance 2012 - Advances-Gross 288,889 285,376 325,825 340,769 349,015 Total Assets -Gross 653,458 754,158 862,886 1,013,607 1,091,095 Deposits 514,707 608,412 667,878 734,596 805,111 Total Liabilities 581,667 667,998 761,379 902,409 968,941 Net Assets 52,038 66,198 80,890 89,256 100,674 Markup/Return/Interest earned 49,503 54,222 67,001 72,116 64,606 Markup/Return/Interest Expensed (31,142) (32,552) (38,815) (35,977) (31,345) Non-Interest Income 13,794 9,603 12,736 9,755 11,210 Operating Expenses (14,853) (15,804) (17,390) (18,603) (20,797) Profit after tax 11,641 14,643 15,015 15,120 14,427 Provisions - expense/(reversal) (1,362) (628) (1,254) (1,649) 199 BMR Details: ABL getting loans from State Bank of Pakistan for SMEs modernization for the buy of new transported in/nearby apparatus and hardware for BMR (Balancing, Modernization and Replacement) for existing foundations, foundation of new units and acquisition of new generators for import/neighborhood acquirement the limit is 500 KVA. Such borrowings are repayable in 3 to 10 years. Borrowings are figured at the yearly loan cost of 3.00% to 3.50% (2014: 6.25%). Current Scenario: As of today the bank is successful due to the strong equity and deposits. ABL focuses on retail banking. Currently ABL has more than 700 branches in Pakistan and all are facilitating the customers by offering different products to its consumers. Industry / Competition: The main competitors of ABL are BANK AL-FALAH, FAYSAL BANK, PRIMEBANK, MCB. Due to tuff competition with these banks ABL is forced to sanction loans at less interest rates, so that to attract the customers. And because of these low rates it earns less. The threat of these competitors is a very big hurdle in the way of success of ABL. Relationship Strategy As a result of capital remaking in August 2004, , the Bank's possession was exchanged to a consortium involving Ibrahim Group who had offered most astounding offered of Rs.14.2 billion for procurement of extra 325 million offers at the cost of roughly Rs.43.69 for every offer (The Allied Bank story, 2004). Here after, it was bank was spoken as Allied bank constrained in 2005. Presently, with a practice of more than 70 years, the Bank depends on the establishment of solid value like strong equity, assets and deposits. While underscoring on retail managing an account, it now offers all inclusive keeping money administrations with system of more than 1100 branches and ATMs in Pakistan. The bank is putting forth to its different demographic with extensive variety of innovation based items and administrations.The bank is running easily in light of more than 70 years' involvement with the following vision, mission and center esteems. Financial Highlights Auditor: KPMG Taseer Hadi & Co Balance Sheet FY14 FY15 FY16 Profit & Loss FY14 FY15 FY16 Total Assets 843,097,566 992,739,247 1,071,044,303 Sales 80,188,236 82,428,342 76,479,090 Total Debts 761,532,751 902,614,332 969,228,931 EBITDA 66,165,697 76,577,770 78,313,485 Net Worth 81,564,815 90,124,915 101,815,372 Leverage Ratio- Net Profit 15,202,000 15,314,275 14,700,136 Current Ratio- Net Worth/Total Assets- Calculations Net Worth: Total Assets – Total Debts Leverage Ratio: Total Debts/Net Worth Current Ratio: Current Assets/Current Liabilities Current Assets: Cash and balances with treasury banks + Balances with other banks + Lendings to financial institutions + Investments + Advances Current Liabilities: Bills payable + Borrowings + Deposits and other accounts Sales: Mark-up / return / interest earned + total non-markup / interest income EBTIDA: Net Income + Interest + Taxes + Depreciation + Amortization Gross Margin: Net Income – Expense/Net Income Profitability The breakup of income of Allied Bank in terms of Interest and Non-Interest Income is given below: Income FY15 Percentage of Sales FY16 Percentage of sales Interest Income 72,118,859 87.5% 64,610,-% Non-Interest Income 10,309,483 12.5% 11,868,-% Total 82,428,342 100% 76,479,090 100% Allied Bank earned a total income of Rs. 76,479,090 in FY16 and it was a decline of 7.21% as in comparison to the FY15 as they earned an income of about Rs. 82,428,342. The reason behind this decline is that the income that comes from the interest of loan that Allied Bank gave to its customers has declined from Rs. 24,958,573 to Rs. 21,347,070 as in FY15 and FY16 respectively. The held to maturities security also decreased in FY16. The administrative expense also increased from Rs. 18,464,116 to Rs. 20,619,264 the main component behind this increase is the Rent, taxes and Electricity and computer expense. During the FY15 and FY16 the taxes that were paid by Allied Bank were Rs. 10,461,306 and Rs. 9,477,730 respectively. The Gross Margin decreased in the FY16 in comparison to FY15 as in FY15 the gross margin was 33.11% but in FY16 it decreased to 31.27% it was mainly due to the reason that administrative expenses had increased. The gross margin shows that at every Rs. 1 of revenue they used to have Rs. 0.33 and now they have Rs. 0.31. Liquidity The liquidity position of Allied Bank has increased slightly from FY14 but stayed stable in the FY15 and FY16 as the current ratio was 1.05, 1.06 & 1.06 respectively. The current ratio increased as the current assets and current liabilities both increased at the same time. As cash and balances increased during the analyzed fiscal years in FY14 it was Rs. 41,252,303, in FY15 it increased to Rs. 56,711,623 as currency in hand in local and foreign currency both increased. The balances with banks increased significantly from Rs. 873,500 to Rs. 4,077,613. The current liabilities which included borrowings also increased from Rs. 66,096,472 to Rs. 137,959,818 in which the borrowing in Pakistan significantly increased from Rs. 55,276,579 to Rs. 121,660,024. Current Ratio remained the same in FY16 but current assets and current liabilities both increased but the difference didn’t changed. Cash and balance increased from Rs. 56,711,623 to Rs. 73,203,767 as the remittances in transit with State Bank of Pakistan increased both in local currency and foreign deposits. Current Liabilities also increased in the FY16 from Rs. 16,256,802 to Rs. 16,920,059, that’s why the current ratio stayed stable. The current ratio for Allied Bank shows that they are capable of converting their current assets to pay off their current liabilities; in other we can also say that for debt of Rs. 1 Allied Bank has Rs. 1.06 to pay off their Rs. 1 debt. Capital Structure/Debt Service Net worth of Allied Bank increased from FY15 to FY16 as from Rs. 90,124,915 to Rs. 101,815,372 as lending to other institutions and Investments significantly increased in the same Fiscal Years. The increase was also due to lending of Mudaraba and Musharaka in the FY16. The borrowings decreased in the FY16 as in comparison to the FY15 the reason behind decrease in the borrowing is as Allied Bank had taken loan from State Bank of Pakistan for providing financing facilities to the exporters in terms of modernization and machinery. This loan have been paid out in the FY16. The amount of this loan is Rs. 5,445,140. That’s why the leverage ratio has decreased from 10.01 to 9.51 as the total debt has decreased in the FY16 in comparison to FY15. CFO: Cash Flow from Operating (Activities) Allied bank limited booked PBT of PKR 63 Mln in FY15 as compared to PKR 14 Mln last year. CFI (CASH FLOWS FROM INVESTING ACTIVITIES) 147,043,339 spent on Net investments in ‘available-for-sale’ securities 107,180,271 spent on Net realizations / (investments) in ‘held-to-maturity’ securities 3,541,998 spent on Dividend received 6,130,195 spent on Investments in operating fixed assets 50,069 spent on Proceeds from sale of operating fixed assets CFF CASH FLOW FROM FINANCING ACTIVITIES FY2016 is 73,820,246 as compared to FY2015 is 60,687,368 Against the holding of 6,248,800 shares (99.99%) carried at a cost of Rs. 62.488 million resulting in a gain of Rs. 83.413 million. Cash Cycle Bank have peculiar cash cycle because bank doesn’t deal with the inventories. Risk Analysis: BUSINESS RISK ABL’s business risks mainly include the following: a. Risk of lower profit margins This includes the risk that bank profit margins may decline as a result of various economic and market factors. The main reason for the banking sector's intensified competition and regulatory changes is the overall higher capital cost, which has put pressure on the spread obtained by the Bank. b. Risk of reduced credit demand As interest rates rise and borrower financing increases, so the Bank is at risk of a drop in credit demand. c. Competition The arrival of foreign banks and the merger of small banks have increased banking competition. In view of this, ABL is expected to face fierce competition. d. Risk due to Non-Performing Loans (NPLs) The bank has recorded PKR 1.37 billion as provisions against NPLs in FY 2008 as In contrast to 2.71 billion dollars in FY 2007. A great increase in the afflicted portfolio of the bank may bring down profitability/losses and subsequently will cause negative equity. .e. Risk due to change in Investment Policy Any change in the Bank’s Investment Policy may lead to an impact on the price risk, interest rate risk etc. that ABL is exposed to. With the expected increase in National Saving Schemes (“NSS”) profit rates, the Bank may experience reduction in deposits. INSTRUMENT RISKS a. Default Risk Given the unsecured nature of the instrument, default risk is of high importance to the investors. Mitigates: The Bank has been assigned a long term rating of ‘AA’ (Double A) and short term rating of ‘A1+’ (A One plus) by PACRA. The Instrument has received a rating of ‘AA-’ (Double A Minus). The overall quantum of PKR 3,000 million of the TFC issue represents a small percentage ofthe total liability base of PKR 344 billion (as at Dec 31, 2008). The Bank enjoys strong sponsor support. b. Liquidity Risk By investing in TFCs, investors bear the risk of not being able to sell TFCs without adversely affecting instrument prices. Mitigate: TFCs will be listed on KSE and KSE will provide liquidity to TFC throughout the life of TFC by facilitating secondary market transactions. In addition, market makers will be listed for this tool.c. Interest Rate or Price Risk Fluctuations in interest rates, and underlying inflation, may adversely affect the yield to the investors. d. Capital Market Risk The TFC issue will be listed on the KSE and the TFC holders of the Bank will be able to sell or buy TFC’s through the members of the KSE. Price of TFC’s will depend on the bond market behavior and the performance of the Bank. Hence price may rise or fall and result in increase or decrease in thevalue of TFC’s to any extent. e. Regulatory Risk Change in the administrative structure may have an adverse effect in the profitibility of ABL. f. Nature of Investment This instrument is unsecured, including deposits, subordinated to all other obligations to pay principal and profits, and cannot be redeemed by its due date without SBP approval. The decrease of capital adequacy ratio of the Bank may affect the repayment of TFC. g. Changes in Tax Regime Any adverse change in the Tax regime for investment in TFCs may affect the redemption and profit for the TFC investors. h. Reinvestment Risk Investors in fixed income securities face the risk that the interest rate at which the interim cash flows can be re-invested may fall and that the investor may not have suitable avenues for investing interim cash flows. Further, the investors may assume this risk in case ABL exercises “call option” or “partial call option”. CIB Status: ECIBs of Allied bank limited dated December 31st , 2015, showing consolidated exposure as on December 31st 2016 are clean. Non-Funded Exposure: PKR 17,971,000 Prudential Regulation Compliance Complaint Recommendation Usage of more marketing strategies in retailing sector and commercial banking SME should be given the rights in all financial matters Allied bank must have a focus lending on the private sector instead of public sectors. There should allied bank make the initiative to the investment banking operation. Commonness of e commerce with the help of internet banking should allow flourishing in all branches. The Bank will continue to maintain its growth momentum and strive to become a leader in the banking industry by adopting a number of measures, namely: 1. Updating branches 2. Launching bank-guaranteed products 3. Actively mobilizing deposits and focusing on reducing costs, 4. Subsidiary begins asset management business.