PACRA Maintain Entity Ratings of BankIslami Pakistan Limited

The ratings reflect BankIslami's established position in the country's Islamic banking space. With the acquisition of defunct KASB Bank in May 2015, BankIslami's system share in deposits improved. Post-acquisition, BIPL had faced significant withdrawal of deposits, owing to removal of moratorium imposed on defunct KASB Bank. However, same was managed successfully. Moreover, this acquisition resulted in i) increase in footprint, ii) deposit base, and iii) strategic investment book. The Bank also inherited carried forward tax losses and a sizeable portfolio of non-performing assets; that has its own challenges and opportunities. To compensate the Bank for negative net worth of the defunct KASB Bank, it was also provided low cost subordinated loan facility from SBP; supporting Bank's revenue and CAR. Although BankIslami has enhanced deposit base, yet risk of withdrawal from key depositor acquired through amalgamation (representing 13% in total deposit) remains. Given time required to fully absorb defunct KASB Bank related costs, operational performance is yet to stabilize. Meanwhile, recoveries from non-performing loans provide support to augment profitability. The management, while synergizing on enhanced outreach intends to pursue growth.
The ratings require sustainable improvement in BankIslami’s operational performance, in turn, maintaining positive trend in bottom-line. At the same time maintaining a strong capital adequacy while pursuing growth is important. Any downward spiral in profits, or incidence of non-performing assets may negatively impact the ratings. Meanwhile, ratings remain on Watch to monitor profitability from core operations and manage any unforeseen issues related to defunct KASB Bank.

About the Entity
BIPL, a scheduled Islamic bank, commenced operations in Apr-06 and is listed on the Pakistan Stock Exchange. BankIslami Pakistan Limited acquired defunct KASB Bank Limited, which stands merged with and into BankIslami effective May 07, 2015. Post-acquisition, BIPL has a branch network of 321 branches. The four business groups hold a cumulative ~76% stake namely Jahangir Siddiqui & Company Limited (JSCL) (21%), Mr. Ali Hussain along with SAJ Capital Management Limited (21%), Randeree Family (~20%), and Dubai Bank PJSC (14%). BIPL's board of directors (BoD) comprises eight members including CEO and two independent directors. Mr. Hasan A. Bilgrami, the founding CEO and possessing experience with leading financial institutions, has been instrumental in the development of the bank and stays as the key resource. He is supported by an able team.