PACRA Maintain Debt Instrument Rating of BankIslami Pakistan Limited | ADT-1 Modaraba Sukuk I | PKR 2 Bln| Apr-20

BankIslami Pakistan Limited (BIPL) has demonstrated remarkable growth over the last couple of years in areas crucial to the risk profiling of any commercial bank. The bank, under the new leadership, has recorded expansion in the deposit base. There has been enhancement in the system share as well, enabling the bank to fare better with the banks rated higher. The delta achieved with the peers supported the rating ascension. The Islamic banking space is expanding and some mentionable players are taking the lead. BIPL is fast-rising in this space. During 9MCY23, the Bank’s net profitability increased to PKR 8.47bln, attributable to an impressive increase in markup earned. The net markup income surged by 107.7% and clocked in at PKR 28.34bln (9MCY22: PKR 13.64bln) attributable to appreciable growth in the investment book primarily driven by the allocation of excess liquidity in GoP Ijara Sukuk. The Bank’s spread ratio displayed an improvement to 9.3% (9MCY22: 5.4%). The cost of funding base for Islamic banks is efficient and it is contributing towards internal capital generation. The Bank’s deposit base reflected significant additions tilted towards term and saving deposits with a slight decrease of ~1.9% in current deposits. With the execution of operational efficiency, during 9MCY23, the Bank’s CAR rose to 22.42% (CY21: 17.92%). The Bank’s asset quality has largely remained sustained with an increase in coverage. The equity base, in turn, the risk absorption capacity of the Bank has recorded a commendable improvement
The banking sector has continued to flourish with high profitability. Going forward, the macroeconomic environment is beset with myriad challenges due to heightened interest rates, tightening of demand, rupee depreciation, and higher infection. This has repercussions for the entire system including banking. Sustained asset quality and profitable growth is essential for ratings

About the Entity
BIPL, a scheduled Islamic bank, commenced operations in Apr-06 and is listed on PSX. BIPL has 407 branches as of September 23. There has been a significant shift in BIPL's ownership structure, with JS Bank securing a substantial 75.12% equity interest in the bank. As a result, BIPL is now officially categorized as a subsidiary of JS Bank. BIPL’s eight-member board of directors (BoD) constitutes representatives of sponsoring groups and independent directors. On September 29, 2023, Mr. Rizwan Ata joined as the 'President & CEO of the BIPL. He brings extensive experience from key leadership roles in local and international banks.

About the Instrument
BankIslami issued fully paid up, rated, listed, perpetual, unsecured, subordinated, non-cumulative and contingent convertible listed modaraba Sukuk certificates (“Sukuk”). The issue amount of PKR 2bln. The tenor of the instrument is perpetual and carries a profit rate of 3MK + 2.75%. The profit is being paid monthly in arrears on the outstanding principal amount on a non-cumulative basis. The amount raised is part of BIPL's Additional Tier 1 Capital for capital adequacy ratio as per guidelines set by SBP. Neither profit nor principal will be payable in respect of TFC, if such payment will result in a shortfall in the bank’s MCR or CAR. The bank may call the TFCs, with prior approval of SBP, after five years from the date of issue