PACRA Maintains Rating of BankIslami Pakistan Limited | Modaraba Sukuk

Assigned ratings incorporate BIPL’s good capitalization, sustained market share (both in terms of advances as well as deposits). The Bank’s net profitability enhanced attributable to reversal of provision whilst there was decline in net markup income due to the attrition in markup earned. The Bank was able to achieve good operating profits and sustained non markup income; trend should continue. The Bank’s customer deposit recorded significant addition tilted towards current deposits. Hence, upward trend in CASA recorded (end-Dec21: 68.1%, end-Dec20: 62.7%). Key positions are headed by experienced individuals. The focus is on risk management, IT infrastructure, workforce strengthening and customer facilitation which is assisting the bank in achieving operational efficiency. The Bank’s CAR is at 14.2% in CY21. The positive outlook captures improved profitability, enhanced liquidity, and sizable increase in funding base driven by deposits, largely sustained infection and better CAR. Successful execution of the business strategy, while improving efficacy of the risk management framework to improve asset quality will remain vital. Going forward, the Bank will continue with its pro-business and pro-tech strategy by placing emphasis towards escalation in trade business, enhancement in low-cost CASA deposits, widening its corporate and consumer financing book.
Going forward, the macroeconomic environment is beset with myriad challenges due to heightened interest rate, tightening of demand, rupee depreciation and higher infection.
The Bank had a successful right issue of PKR 1bn in 2019 and ADT-1 of PKR 2bn in 2020. There were a total of 190 investors who participated in ADT-1 Sukuk as it is a listed instrument. The Bank is also in the process to issue a new ADT-1 Sukuk of PKR 1bln.

About the Entity
BIPL, a scheduled Islamic bank, commenced operations in Apr-06 and is listed on PSX. BIPL has 341 branches as at March-22.. The four business groups hold a cumulative 72.9% stake namely Jahangir Siddiqui & Company Limited (JSCL) (21.3%), Mr. Ali Hussain along with SAJ Capital Management Limited (24.4%), Randeree Family (~14.3%), and Emirates NBD Bank PJSC (13.0%). BIPL’s eight-member board of directors (BoD) including CEO constitutes representatives of sponsoring groups and independent directors. Mr. Syed Amir Ali joined bank as Deputy CEO in Apr-18. He took up the position of ‘President & CEO' in Oct-18. He is a Chartered Accountant and CFA Charter holder, carrying more than one-decade of Islamic Banking experience mainly of Meezan Bank.

About the Instrument
BIPL issued fully paid up, rated, listed, perpetual, unsecured, subordinated, non-cumulative and contingent convertible listed modaraba Sukuk certificates (“Sukuk”). The issue amounts to PKR 2bln. The tenor of the instrument is perpetual and carries a profit rate of 3MK + 2.75%. The profit is being paid monthly in arrears on the outstanding principal amount on a non-cumulative basis. The amount raised is part of BIPL's Additional Tier 1 Capital for capital adequacy ratio as per guidelines set by SBP. The funds are being utilized in the bank's financing and investing activities. BIPL may exercise a call option on the Sukuk on or after five years from the issuance date.