MCB Islamic Bank Limited

CREDIT RATING REPORT | Jun-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
23-Jun-25 A+ A1 Stable Maintain -
22-Jun-24 A+ A1 Stable Upgrade -
23-Jun-23 A A1 Stable Maintain -
23-Jun-22 A A1 Stable Maintain -
23-Jun-21 A A1 Stable Maintain -
About the Entity

MCB Islamic Bank Limited was formed as a banking company in May 2014 and commenced its commercial operations in October 2015. It is a wholly owned subsidiary of MCB Bank Limited, one of the core entities of the Nishat Group, which holds a strong and diversified presence in Pakistan’s financial sector. As of March 2025, the Bank operates through a network of over 300 branches, supported by 290 ATMs, across 290 locations in 134 cities nationwide. This expansion includes the successful transfer of 39 branches from MCB Bank Limited, significantly enhancing its nationwide footprint. Mr. Zargham Khan Durrani continues as President & CEO of MCB Islamic Bank. Ms. Nabeela Waheed joined the Board, replacing Ms. Seema Aziz, bringing 35+ years in banking and risk management. Mr. Muhammad Saqib Sajjad joined management as Group Head Treasury & FXG with 20+ years’ experience in Treasury and Capital Markets.

Rating Rationale

MCB Islamic Bank Limited (MCB Islamic), a wholly owned subsidiary of MCB Bank Limited (MCB), continues to strengthen its presence in the evolving Islamic banking landscape through a strategic focus on sustained growth, network and business volume expansion, and investments in technology. In alignment with its Parent Bank’s strategy, MCB Islamic is expanding its branch network to mobilize low-cost and no-cost deposits. In line with its prudent financing practices, the Bank is also broadening its financing portfolio to promote financial inclusion. This has resulted in a notable improvement in the Advances-to-Deposits Ratio, reaching 58.6% as of end-Dec’24 (Dec’23: 44.3%), with a significant portion of the growth driven by onboarding new-to-Bank customers. Although MCB Islamic remains a small-sized Bank, it has sustained and modestly increased its deposit base, with customer deposits rising to PKR 190bln in FY24 (CY23: PKR 183bln). The Bank’s market share in terms of deposits remained stable at 0.7% as of Dec'24. Deposit mobilization continues to be a key focus area, supported by the Parent Bank. Notably, 39 conventional MCB branches have been successfully converted into Islamic branches under a 'Scheme of Compromises, Arrangements and Reconstruction' approved by the Honorable. Supported by an efficient organizational structure, robust risk management and strict regulatory compliance, the Bank achieved Profit Before Tax of Rs. 9.11bln for the year ending Dec’24 (Dec’23: 11bln). Asset quality metrics remain satisfactory, supported by strong capital buffers. The Bank’s equity base grew to PKR 25.9bln (CY23: PKR 22bln). The Capital Adequacy Ratio (CAR) stood at 20.5% at FY24 end (Dec’23: 23.8%), comfortably above the regulatory minimum of 11.5%. The Bank’s management remains committed to long-term sustainable profitability by emphasizing efficient capital management, superior asset quality, and a high-yielding portfolio. The Bank is also upgrading its technology platform and shifting towards the latest technology to keep pace with the banking industry.

Key Rating Drivers

Effective management of asset quality and operating expenses will be critical going forward. The rating is thus maintained, reflecting the continued strong support from the parent, stable deposit base, improving advances deployment, a solid capital adequacy position, and a stable equity base, despite near-term profitability pressures. Any weakening in asset quality will in turn put pressure on the Bank's profitability and risk absorption capacity.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

MCB Islamic Bank Limited

rating analysis

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Profile
Structure

MCB Islamic Bank Limited (MCB Islamic) was incorporated in Pakistan as an unlisted Public Limited Company on May 15, 2014.


Background

After the issuance of a Certificate of Commencement of Banking Business by the State Bank of Pakistan (SBP) in Sep'15, MCB Islamic started its commercial operations as an Islamic Bank in Oct'15. In Mar'16, the Lahore High Court approved the demerger of Islamic Banking Group (IBG) of MCB Bank Limited from MCB and its merger with and into MCB Islamic. Resultantly, all domestic Islamic banking operations of MCB-IBG were incorporated into MCB Islamic w.e.f September 30, 2015, for PKR 7.9bln.


Operations

The Bank is engaged in corporate, commercial, consumer, microfinance, investment, and retail banking activities. The Bank operates through over 300 branches as of Dec 24 (Dec 23: 226 branches; Dec 22: 198 branches) including two sub-branches in Pakistan. branches including two sub-branches in Pakistan.


Ownership
Ownership Structure

MCB Islamic is a wholly owned subsidiary of MCB Bank Limited (MCB). MCB is one of the largest Banks in terms of deposits and operates a branch network of 1,403 branches across Pakistan.


Stability

MCB Islamic is a wholly owned subsidiary of MCB Bank Limited. MCB – the parent company – had been supportive from time to time. Recently, the support has been witnessed in the form of capital injection. The stability of ownership is expected to remain intact in the foreseeable future. The ownership of the Bank is expected to stay stable in the foreseeable future as the Bank is one of the flagship entities of Nishat Group.


Business Acumen

Nishat Group (the sponsor group) is a premier business house in Pakistan, including individual holdings and holdings through group corporates. The group is one of the leading and most diversified in South East Asia, having a presence in numerous industries and sectors.


Financial Strength

Apart from MCB Islamic Bank Limited, MCB Bank Limited has five more subsidiaries namely; a) MNET Services (Pvt.) Limited, b) MCB Financial Services (Pvt.) Limited, c) MCB Leasing Closed Joint Company Limited, d) MCB-Investments Limited. The Bank is rated “AAA/A1+” by PACRA, and the Bank recorded a net income of PKR 57.6bln in CY24 (CY23 PKR 59.6bln).


Governance
Board Structure

The overall control of the Bank vests with an eight-member Board of Directors (BoD) including the CEO/ President. The Board exercises close monitoring of the management’s policies and the Bank’s operations through its committees.


Members’ Profile

Mr. Raza Mansha is the Chairman of the Board. He is accompanied with over 2 decades of diversified experience in various business sectors. Majority of the Board members possess extensive national and international banking and financial services industry experience. Mr. Jawaid Iqbal, an Independent Director, is a seasoned businessman with over 20 years of board-level experience across Metro Power companies. Mr. Ibrahim Shamsi, a Non-Executive Director from MCB Bank, leads various ventures including Joyland (Pvt.) Ltd. and Cotton Web (Pvt.) Ltd. Mr. Ahmed Ebrahim Hasham, also a Non-Executive Director from MCB Bank, serves as Executive Director, COO, and MD of Mehran Sugar Mills Ltd. Ms. Nabeela Waheed, Director, brings over 35 years of Banking expertise, having led Risk Management at MCB Bank. Mr. Hammad Khalid, Chief Financial Officer, is a Chartered Accountant with 18 years of financial control experience at MCB Bank. Mr. Omair Safdar, Head of Wholesale Banking, is a CFA Charterholder with 19 years in Banking, leading Corporate & Investment Banking at MCB Bank.


Board Effectiveness

The Board exercises close monitoring of the management’s policies and the Bank’s operations through its Committees. While participating in all Board and Committee meetings, active decision making was ensured.


Financial Transparency

The External Auditors, PWC A.F. Ferguson, Chartered Accountants, issued an unqualified audit opinion about the annual financial statement for CY24. Furthermore, the Board has set up an effective internal audit function that reports independently to the Audit Committee.


Management
Organizational Structure

MCB Islamic follows a functional structure, where Bank’s operations are grouped under thirteen departments. Group Head Audit & RAR and Head Shariah Compliance Department also reports to BoD’s Audit Committee and Shari’ah Board & President, respectively.


Management Team

Mr. Zargham Khan Durrani, the CEO, has an extensive Banking career spanning over 30 years. Before joining MCB Islamic Bank, he was the Group Head of Retail Banking (SEVP) at MCB Bank. He is an experienced banking professional having hands-on experience in branch banking, digital banking, and SME / Commercial lending and the transformation of MCB Bank’s retail franchise over the last 15 years is a testament to his success. The leadership team at MCB Islamic Bank comprises highly experienced professionals with an average overall experience of around 28.5 years. Among them, Mr. Muhammad Tariq Gondal, Group Head - Compliance & Controls, brings with him 30.9 years of experience; Mr. Syed Iftikhar Hussain Rizvi, Group Head - Finance / CFO, has an extensive background of 35.4 years in finance; Mr. Muhammad Saeed Raja, Group Head - Back Office Governance & Strategic Projects, holds 34.11 years of expertise in banking operations. Similarly, Mr. Muhammad Hamid Yasin, Group Head - Consumer & Micro Financing, has 30.4 years of experience; Mr. Omer Khalid Lashari, Group Head - Corporate Investment Banking & FI, contributes 30.5 years of experience; and Ms. Syeda Maziya Hussain, Head of Service Quality & Strategy, brings a strong background of 18.4 years. These seasoned professionals significantly contribute to the strategic growth and operational excellence of the Bank.


Effectiveness

The Bank has five committees in place at the management level to oversee its day-to-day operational matters and make decisions to implement the strategy outlined by the board.


MIS

The Bank is currently using the Oracle Business Digital Experience (OBDX) platform as part of its Management Information System (MIS). This software incorporates various modules and embedded checks at multiple levels, enabling the Bank to effectively mitigate and reduce operational risks. Additionally, to strengthen its digital infrastructure and enhance system capabilities, the Bank is undertaking upgrades within the platform.


Risk Management Framework

Five units are working under RMG i) Credit Risk Review, ii) Market and Liquidity Risk Management, iii) Operational Risk and Business Continuity Planning, iv) Fraud Risk, and v) IT Security risk. The Bank has developed an Operational Risk Management Framework. Operations Risk & Internal Control Unit has been working to strengthen the internal control environment of the Bank. The Bank has assigned 79.76% of its obligors under the 'Good' credit risk category, 17.48% under 'Marginal,' 0.53% as 'Overdue but not Classified,' and 2.23% under the 'Loss' category.


Business Risk
Industry Dynamics

During CY24, Pakistan's Banking sector's total assets posted growth of ~15.81% YoY whilst investments surged by ~14.50% to PKR ~29.79trln (endDec23: PKR ~26trln). Gross Advances of the sector recorded growth of ~29.11% to stand at PKR ~16.914trln (end-Dec23: PKR ~13.101trln). Non-performing loans witnessed an increase of 7.34% YoY to PKR ~1,068bln (end-Dec23: ~995bln). The CAR averaged at 20.6% (end-Dec23: 19.7%). Looking ahead, given the expected monetary rate cut and high cost environment, Banks are likely to sustain some dilution in profitability by CY25. (Source: SBP Compendium)


Relative Position

MCB Islamic is a small-sized Bank with slow, however sustainable growth and has witnessed an increase of 3.3% in its customer deposit to PKR 190bln (CY23: PKR 183bln), with a slight increase in market share of 0.7% (CY23: 0.7%, CY22: 0.6%).


Revenues

During CY24, the markup earned of the Bank witnessed an increase of 27.63% to PKR 45.9bln (CY23: PKR 35.9bln) on account of an increase in markup earned on investments. The increase in markup earned was mainly due to the decrease in key policy rates during CY24. Consequently, the Bank’s net-markup income stood at PKR 17.9bln (CY23: PKR 17.1bln). The Bank’s spread decclined and stood at 7.3% (CY23: 9%). Hence, total income recorded a slight increase to PKR 19.9bln (CY23: PKR 18.9bln).


Performance

The Bank’s non-markup income witnessed improvement, clocking in at PKR 1,970mln (CY23: PKR 1,737mln), primarily attributable to enhanced gain on securities CY24: PKR 305mln (CY23: PKR 17mln). The foreign exchange income decreased significantly from 735mln in CY23 to 418mln in CY24. The bank’s pre-provision operating profit stood at PKR 9.7bln for the year CY24 (CY23: PKR 11.2bln). The Bank also increased the fee and commission income and reported PKR 955mln in CY24 as against PKR 741mln in CY23.  Dividend income was not received during the year, compared to PKR 13mln in CY23, reflecting a 100% decline.


Sustainability

Going forward, the management is positive regarding securing growth.  The management intends to continue with its strategy of long-term sustainable profitability by focusing on mobilizing no and low-cost deposits along with high-earning assets and containment of operating costs. However, the ability to manage the asset quality will be critical for the Bank under the current situation.


Financial Risk
Credit Risk

During CY24, the net advances of the Bank inclined 33.5% to PKR 119bln (CY23: PKR 89.3bln), This led to advances in the ratio of the deposit (ADR) at a level of 57%. During CY24, the Bank’s earning assets – mainly comprising advances and investments – constitute 86.5% (CY23: 83.1%; CY22: 81.3%) of total assets.  MCB Islamic’s non-performing loans (NPLs) were increased to PKR 2.58bln (CY23: PKR 1.95bln) during CY24. Hence, the infection ratio was also affected and posted at 2.1% (CY23: 2.2%). On the other hand, the provision coverage ratio improved to 74.6% (CY23: 38.7%).


Market Risk

The Bank’s investments stood at PKR 146bln inCY24 (CY23: PKR 133bln) Moreover, the mix of government securities in overall investments also enhanced to 99.55%; hence, the Bank is exposed to relatively low market risk.


Liquidity and Funding

The Bank’s liquidity position has seen decline in liquid assets to deposits plus borrowing at 64.1% (CY23: 66.9%). During CY24, the CA of the Bank was recorded at 29% (CY23: 28%) and the SA ratio slightly increased to 48% (CY23: 43%).  The bank has a borrowing of PKR 48.4bln (CY23: PKR 25.8bln).


Capitalization

The paid-up capital of the Bank stands at PKR15.5bln. The Bank’s Capital Adequacy Ratio (CAR) slightly declined to 20.5% as of Dec’24 (Dec’23: 23.8%), still maintaining a sizable cushion above the regulatory requirement of 11.5%. The equity-to-total assets ratio of MCB Islamic showed a marginal improvement, increasing to 8.4% in CY24 from (CY23: 8.3%, CY22: 8.2%).
 
 

Jun-25

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MCB Islamic Bank Limited

financial summary

(PKR mln)

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Dec-24
12M		 Dec-23
12M		 Dec-22
12M
A. BALANCE SHEET
1. Stage I | Advances - net 119,133 88,135 88,798
2. Stage II | Advances - net (438) 0 0
3. Stage III | Non-Performing Advances 2,589 1,958 1,679
4. Stage III | Impairment Provision (1,931) (745) (175)
5. Investments in Government Securities 145,935 131,781 71,839
6. Other Investments 661 763 830
7. Other Earning Assets 2,008 2,502 6,172
8. Non-Earning Assets 39,386 42,606 29,897
Total Assets 307,344 267,000 199,040
6. Deposits 209,109 204,460 154,001
7. Borrowings 48,422 25,814 14,671
8. Other Liabilities (Non-Interest Bearing) 23,867 14,690 14,020
Total Liabilities 281,398 244,963 182,693
Equity 25,946 22,036 16,347
B. INCOME STATEMENT
1. Mark Up Earned 45,875 35,942 18,553
2. Mark Up Expensed (27,934) (18,759) (10,032)
3. Non Mark Up Income 1,970 1,737 868
Total Income 19,911 18,921 9,390
4. Non-Mark Up Expenses (10,259) (7,649) (6,046)
5. Provisions/Write offs/Reversals (543) (704) (141)
Pre-Tax Profit 9,108 10,568 3,203
6. Taxes (4,870) (5,414) (1,654)
Profit After Tax 4,239 5,153 1,548
C. RATIO ANALYSIS
1. Performance
Net Mark Up Income / Avg. Assets 6.2% 7.4% 4.7%
Non-Mark Up Expenses / Total Income 51.5% 40.4% 64.4%
ROE 17.7% 26.9% 11.5%
2. Capital Adequacy
Equity / Total Assets (D+E+F) 8.4% 8.3% 8.2%
Capital Adequacy Ratio 20.5% 23.8% 20.4%
3. Funding & Liquidity
Liquid Assets / (Deposits + Borrowings Net of Repo) 64.1% 66.9% 51.6%
Net Financial Assets to Deposits Ratio [(Total Finances - net + Non-Performing Finances - net) / Deposits] 57.08% 43.70% 58.64%
Current Deposits / Deposits 28.7% 27.6% 27.7%
Saving Deposits / Deposits 48.0% 43.1% 40.0%
4. Credit Risk
Impaired Loan Ratio | [Stage III | Non-Performing Advances / Gross Advances] 2.1% 2.2% 1.8%

Jun-25

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MCB Islamic Bank Limited

rating scale

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Jun-25

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MCB Islamic Bank Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
    1. No director, officer, or employee of PACRA communicates the information acquired by him for use for rating purposes to any other person, except where required under law to do so. (Chapter III; 10-(5))
    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
    3. PACRA prohibits its employees and analysts from soliciting money, gifts, or favors from anyone with whom PACRA conducts business. (Chapter III; 11-A-(q))
    4. PACRA ensures before the commencement of the rating process that an analyst or employee has not had a recent employment or other significant business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest. (Chapter III; 11-A-(r))
    5. PACRA maintains the principle of integrity in seeking rating business. (Chapter III; 11-A-(u))
    6. PACRA promptly investigates in the event of misconduct or a breach of the policies, procedures, and controls, and takes appropriate steps to rectify any weaknesses to prevent any recurrence, along with suitable punitive action against the responsible employee(s). (Chapter III; 11-B-(m))
  4. Independence & Conflict of Interest
    1. PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on PACRA’s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity, and independence of its ratings. Our relationship is governed by two distinct mandates: i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and ii) fee mandate - signed with the payer, which can be different from the entity.
    2. PACRA does not provide consultancy/advisory services or other services to any of its customers or their associated companies and associated undertakings that are being rated or have been rated by it during the preceding three years, unless it has an adequate mechanism in place ensuring that the provision of such services does not lead to a conflict of interest situation with its rating activities. (Chapter III; 12-2-(d))
    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
    4. PACRA ensures that the rating assigned to an entity or instrument is not affected by the existence of a business relationship between PACRA and the entity or any other party, or the non-existence of such a relationship. (Chapter III; 12-2-(i))
    5. PACRA ensures that the analysts or any of their family members shall not buy, sell, or engage in any transaction in any security which falls in the analyst’s area of primary analytical responsibility. This clause, however, does not apply to investments in securities through collective investment schemes. (Chapter III; 12-2-(l))
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  5. Monitoring and Review
    1. PACRA monitors all the outstanding ratings continuously, and any potential change therein due to any event associated with the issuer, the security arrangement, the industry, etc., is disseminated to the market immediately and in an effective manner after appropriate consultation with the entity/issuer. (Chapter III; 17-(a))
    2. PACRA reviews all the outstanding ratings periodically on an annual basis. Provided that public dissemination of annual review and in an instance of change in rating will be made. (Chapter III; 17-(b))
    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
    4. PACRA engages with the issuer and the debt securities trustee to remain updated on all information pertaining to the rating of the entity/instrument. (Chapter III; 17-(d))
  6. Probability of Default
    1. PACRA’s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e., probability). PACRA’s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA’s Transition Study available at our website. (www.pacra.com) However, the actual transition of rating may not follow the pattern observed in the past. (Chapter III; 14-3(f)(vii))
  7. Proprietary Information
    1. All information contained herein is considered proprietary by PACRA. Hence, none of the information in this document can be copied or otherwise reproduced, stored, or disseminated in whole or in part in any form or by any means whatsoever by any person without PACRA’s prior written consent.

Jun-25

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