PACRA Assigns Initial Rating to BankIslami Pakistan Limited | ADT-1 Modaraba Sukuk II | PKR 1 Bln | Feb-24

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 CY23, the Bank’s net profitability increased to PKR 11bln (CY22: PKR 4.4bln), attributable to an impressive increase in markup earned. The net markup income surged by 97% and clocked in at PKR 40.18bln (CY22: PKR 20.40bln) 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 8.9% (CY22: 6%). 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 deposits followed by saving and current deposits. During CY23, the Bank’s CAR inclined to 23.79% (CY22: 17.92%) reflecting ample room for growth. 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 are essential for ratings.

About the Entity
BIPL, a scheduled Islamic bank, commenced operations in Apr-06 and is listed on PSX. BIPL has 440 branches as of December 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
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 instrument 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 Sukuks shall, if directed by the SBP, be fully and permanently converted into ordinary shares and/or be immediately written off (partially or in full) upon the PONV Trigger Event, subject to a cap of 90mln shares. The bank may call the Sukuks, with prior approval of SBP, after five years from the date of issue. The instrument has been issued on February 22, 2024.