The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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PACRA Maintains Rating of BankIslami Pakistan Limited | Modaraba Sukuk

Rating Type Debt Instrument
Action Maintain Initial
Long Term A- A-
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect BankIslami's Improving risk profile. The Bank’s profitability enhanced attributable to improved net markup income despite attrition in advances and sustained non-markup income. The Bank was able to achieve good operating profits; the trend should continue. The Bank’s customer deposit recorded significant addition tilted towards current deposits. Hence, upward trend in CASA recorded (end-Dec20: 62.5%, end-Dec19: 58.5%). 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 a comfortable level of 16.1% in CY20. The relaxations related to CAR given by the central bank will be withdrawn in CY21, 60% amount have been deducted from CET I capital in CY20. The positive outlook captures improved profitability, enhanced liquidity, and a sizable increase in funding base driven by deposits largely sustained infection and better CAR. The ratings capture the need to sustain a growth trend in profitability and deposits. Successful execution of the business strategy, while improving the 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 on the escalation in trade business, enhancement in low-cost CASA deposits, widening its corporate and consumer financing book. COVID-19 is an ongoing challenge. While it has taken a toll on many businesses, its ramifications are still unfolding. The proactive measures are taken by the regulators and other concerning bodies have mitigated the potential damages much anticipated from this pandemic. As a result, the banking industry remained protected and in fact posted record profits. Vigilance is required as the loan repayment cycle remains amid variants of the pandemic continue to re-emerge.
The bank's ability to raise its capital base in order to pursue its growth plan is important. In this regard, BIPL made a right issue of PKR 1bln along with the issuance of ADT-1 Sukuk of Rs. 2 billion.

About the Entity
BIPL, a scheduled Islamic bank, commenced operations on Apr-06 and is listed on PSX. BIPL has 343 branches. 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 (through Dubai Bank PJSC) (13.0%). BIPL’s eight-member board of directors (BoD) including the CEO constitutes representatives of sponsoring groups and independent directors. Mr. Syed Amir Ali joined the bank as Deputy CEO on 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 in April-20. The total size of the Sukuk is PKR 2bln. The issue amount is part of BIPL's Add-Tier 1 Capital for capital adequacy ratio. The profit is being paid at the rate of 3M-KIBOR+275bps in arrears. BIPL may exercise a call option on the Sukuk.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.