Karachi, The Pakistan Credit Rating Agency Limited (PACRA) has maintained its broker fiduciary rating for Alfalah CLSA Securities (Pvt.) Limited (ACLSA) but assigned a rating watch due to concerns over the company's internal controls and debt collection risks. The decision reflects the challenges and ongoing improvements within ACLSA's operational framework, as well as its potential impact on financial stability.

According to The Pakistan Credit Rating Agency Limited, the rating watch was triggered by significant provisions made by ACLSA in December 2023, amounting to approximately PKR 1.1 billion, to cover potential losses from uncollected debts. This move indicates underlying concerns about the effectiveness of the company's internal controls and the adequacy of its risk management practices. PACRA highlighted that ACLSA is actively enhancing its internal controls to mitigate these risks.

ACLSA, primarily owned by Bank Alfalah Limited with approximately 62% of the stakes and CLSA Limited holding about 25%, has demonstrated a notable performance in the brokerage industry during the second quarter of FY24, driven by renewed investor interest. The company's financial sustainability is supported by a low-leveraged capital structure and an equity base of approximately PKR 331 million as of the end of September 2023.

The company’s future rating prospects hinge on its ability to successfully implement revenue and geographical diversification strategies, maintain market share, and improve profitability. PACRA also emphasized the importance of robust internal controls, retention of key management personnel, and diligent risk monitoring as critical factors for ACLSA's ongoing assessment.

The rating agency has communicated its independent and impartial assessment, reflecting ACLSA’s operational and financial challenges and the steps being taken to address them, providing an essential indicator of the company's creditworthiness and operational integrity.