PACRA Maintains the Rating of BankIslami Pakistan Limited | ADT-1 Modaraba Sukuk II | PKR 1 Bln | Feb-24

The assigned rating of BankIslami Pakistan Limited ("BIPL" or the "Bank") reflects its strengthening franchise in Pakistan’s Islamic banking sector, supported by its expanding customer base, continued focus on Shariah-compliant and technology-driven banking solutions, and the ownership backing of the JS Group. BIPL occupies a position of historical and strategic distinction within the country's rapidly evolving Islamic banking landscape. The Bank’s integration within the JS Group has strengthened its operational capacity, market positioning, and long-term growth prospects within Pakistan’s Islamic banking sector. The Bank's digital transformation agenda gained material traction, with "Aik"'—Pakistan's first fully dedicated Islamic digital banking platform—marked a pivotal milestone. Additionally, the Bank demonstrated gradual improvement in its trade-related business, with export and import market shares increasing to 2.3% (CY24: 2.0%) and 1.6% (CY24: 1.4%), respectively, reflecting enhanced penetration in trade finance. On the financial front, gross advances of the Bank marginally declined, with non-performing financing declined to PKR 21.9bln (CY24: PKR 24.2bln). Consequently, the infection ratio receded from 7.4% to 6.8% at the end of CY25. Provisioning buffers remain adequate, providing reasonable coverage against residual credit risk. Deposits expanded to PKR 660bln (CY24: PKR 559bln), anchored by a 35.2% surge in current accounts. The capitalization profile of the Bank remained adequate during CY25; however, growth in risk-weighted assets and settlement of a long-term SBP facility moderated the CAR to 16.6% (CY24: 24.1%), while remaining above the regulatory requirement. The Bank is going to issue the Tier II bond. Going forward, the proposed Tier II bond issuance is expected to strengthen the Bank’s capital base and support future growth. However, potential revaluation pressures arising from the interest rate environment are expected to be partially offset through improved spreads and profitability. Furthermore, during CY25, BIPL’s profitability declined amid margin compression arising from the declined interest rate environment and elevated operating expenses linked to higher administrative expenses and continued investment in digital infrastructure. Net markup income declined to PKR 35.7bln (CY24: PKR 46.4bln), while operating expenses increased to PKR 31.8bln (CY24: PKR 22.7bln). Consequently, profit after tax decreased to PKR 6.0bln during CY25 (CY24: PKR 11.8bln).
Going forward, the Bank’s strong franchise and strategic focus are expected to support sustainable growth and profitability, while maintaining asset quality will remain important. Potential revaluation losses from the interest rate environment are expected to be offset by improved margins and profitability.

About the Entity
BIPL commenced operations in Apr-06 and is listed on PSX. BIPL is a subsidiary (75.12%) of JS Bank Limited. Mr. Ali Hussain holds 12.53% of the stake while the remaining stake is widely spread among general public.

About the Instrument
The Bank has issued rated, perpetual, unsecured, subordinated, non-cumulative, and contingent convertible listed Modaraba Sukuk Certificates ("Sukuk") of PKR 1bln to contribute towards the Bank’s Tier I capital for complying with the CAR requirement prescribed by the SBP. The Sukuk is perpetual. The profit is payable monthly, at the rate of 1MK+250bps. Neither profit nor principal will be payable in respect of Sukuk if such payment will result in a shortfall in the Bank’s MCR or CAR. The Bank may call the Sukuks, with prior approval of SBP, after five years from the date of issue.