The Pakistan Credit Rating Agency Limited
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Iram Shahzadi

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PACRA Maintains Entity Ratings of MCB Islamic Bank Limited

Rating Type Entity
(23-Jun-22 )
(23-Jun-21 )
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

MCB Islamic Bank Limited (MCB Islamic) is a wholly owned subsidiary of MCB Bank Limited (MCB). MCB has a long-term rating of "AAA" reflecting its robust profile, duly supplemented by its strong market position in the local banking landscape, established brand equity, and sound financial profile. MCB Islamic has embarked upon a journey of focused growth after the induction of new leadership. The area of growth is the supply chain vendors, where the group has good understanding and also a presence in one form or the other. The deposit expansion is expected to be exacerbated with renewed emphasis of Islamic banking and optimal use of network. Advances recorded an increase YoY whilst infection remained under check. MCB Islamic is a small-sized bank and has witnessed an increase of 27.8% in its customers' deposits. During CY21, it maintained its system share. The Bank’s continuous focus on the accumulation of low-cost deposits has resulted in a healthy current and savings (CASA) deposit mix. However, deposit mix and concentration need further improvement. Capitalization remains adequate as reflected by Tier I and overall capital adequacy ratio (CAR) of 11.7% and 12.1%, respectively, as on Dec’21. Going forward, the Bank’s equity base will increase after a capital injection of PKR 4bln. This is a great comfort to the ratings. The additional capital will be utilized for lending in several avenues. The management is positive under the new leadership about the growth strategy being crafted. The envisaged strategy will encompass a documented vision for the bank. The Bank’s CAR will record a sizable increase in Jun-22.

Pakistan’s economy has gone through several varied phases in last two years. It was deeply impacted by the magnitude of the COVID19 pandemic. Banking sector continues to flourish with high profitability. Total banking assets posted good growth with sizable increase in investments. Advances posted double digit growth where infection displayed only slight increase. Going forward, increasing interest rate and tightening of demand may have implications on asset quality.
The ratings are dependent on Bank's ability to hold its risk profile, while maintaining its relative market position in the banking industry. Any weakening in asset quality will in turn put pressure on the Bank's profitability and risk absorption capacity.

About the Entity
MCB Islamic Bank Limited was formed as a banking company in May, 2014. MIB is a wholly owned subsidiary of MCB - one of Nishat Group's major concern - having strong presence in the financial sector. It started its commercial operations in October, 2015. The Bank is operating through 180 branches in Pakistan.
The overall control of the Bank vests with eight members of the Board of Directors (BoD), including CEO & President. Board consists of two independent directors and five non-executive members. Mr. Raza Mansha (son of Mian Mansha) is the Chairman of the Board. He is accompanied with over two decades of diversified experience in various business sectors including Banking, Textile, Power, Cement, Insurance, Hotels, Properties, Natural Gas, Agriculture, Dairy etc. Muhammad Afaq Khan is a new president of the Bank since 31st March,2022. He has in his possession experience of over 33 years as an Islamic banking professional. Majority of the Board members possess extensive national and international banking and financial services industry experience.

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.