PACRA Assigns Preliminary Rating to BankIslami Pakistan Limited | Modaraba Sukuk
|Rating Type||Debt Instrument|
The ratings reflect BankIslami's sustained risk profile. During 1HCY19, the bank’s profit increased owing to asset yield driven by increase in policy rate and earning assets. The bank’s new management is emphatically pursuing for recovery of NPLs. In 1HCY19, NPLs inched down on account of some recoveries. The funding base comprise of deposits and borrowings. The bank witnessed slight uptick in its asset yield, better than the cost - ultimately translating into better spread. Deposit mix (CASA) and concentration need to improve. The bank was able to achieve good operating profits; trend should continue. Key positions are headed by experienced individuals. The bank’s management is positive about performance and achieving cost efficiency, pursuing the new business plan under leadership of the CEO. The focus is on risk management, IT infrastructure, workforce strengthening and customer facilitation which will help bank to achieve operational efficiency. The bank has taken steps to strengthen its fortress against cyber risks; adequate provision has been created. Going forward, primary focus is to consolidate CAR as the relaxations given by central bank will be withdrawn in CY21. The management is following the planned steps to enhance capital of the bank which will assist in inching up CAR.
The bank's ability to raise its capital base in order to pursue its growth plan is important. In this regard, BIPL's Board is raising the bank's equity approximately by Rs. 1 billion. It has also approved the issuance of Sukuk of worth Rs. 2 billion which will add to Additional Tier-1 Sukuk of the bank. Additionally, the bank's operational profitability needs to be observed against financial ramifications which may emanate from recent cyber attack or incidence due to non-performing assets owing to slow economic growth.
BIPL, a scheduled Islamic bank, commenced operations in Apr-06 and is listed on PSX. BIPL has 330 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 eight-member board of directors (BoD) including CEO constitutes representatives of sponsoring groups. 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.
The Bank is planning to issue perpetual, Unsecured, Subordinated, Non-cumulative and contingent, convertible listed Mudaraba Sukuk Additional Tier 1 Sukuk of PKR 2.0bln (including green shoe option of PKR 500mln). Profit rate would be 3M-KIBOR+ 275bps points. The profit will be calculated based on predetermined pre-specified rate and monthly weightages announced before beginning of each month and distributed Sukuk holders monthly as per the Pool Management guidelines issued by SBP. The Issue will be subject to loss absorption and / or any other requirements of SBP upon the occurrence of a Point of Non-Viability event as per Annexure 5 of the Circular, which stipulates that “SBP may, at its option, fully and permanently convert the Additional Tier 1 Sukuk into common shares of the issuer and / or have them immediately written off (either partially or in full).”