PACRA Maintains Entity Ratings of BankIslami Pakistan Limited | Rating Watch maintained

The ratings reflect BankIslami's sustained risk profile. During CY18, the bank’s profit increased owing to asset yield driven by increase in policy rate and earning assets. The bank’s new management is emphatically pursuing for recovery of NPLs related to KASB Bank. In CY18, NPLs inched down on account of some recoveries. The funding base comprise of deposits and borrowings. The bank rationalized its cost by increasing its customer deposits. Consequently, the bank’s spread inched up. Although, deposit mix (CASA) and concentration need to improve. The bank was able to achieve operating profits; trend should continue. The new management is positively looking at the performance side. In recent year, some structural changes were made as key positions were filled with experienced individuals. The bank’s management is positive about achieving cost efficiency and has started pursuing new business plan under leadership of new CEO. The focus is on risk management, IT infrastructure, workforce strengthening and customer facilitation which will help bank to achieve operational efficiency. The bank has taken steps to strengthen its fortress against cyber risks. Going forward, primary focus is to consolidate CAR as the relaxations given by central bank are under negotiations.
The rating watch captures the bank's ability to raise its capital base in order to pursue its growth plan. In this regard, BIPL's Board has agreed in-principle to raise the bank's equity by Rs. 1 billion. It has also approved the issuance of Rs. 2 billion worth of Additional Tier-1 Capital. Additionally, the bank's operational profitability needs to be observed against financial ramifications which may emanate from recent cyber attack or incidence due to non-performing assets.

About the Entity
BIPL, a scheduled Islamic bank, commenced operations in Apr-06 and is listed on PSX. BIPL acquired defunct KASB Bank, effective May 07, 2015. BIPL has 330 branches. The four business groups hold a cumulative ~76% stake namely Jahangir Siddiqui & Company Limited (JSCL) (21%), Mr. Ali Hussain along with SAJ Capital Management Limited (21%), Randeree Family (~20%), and Dubai Bank PJSC (14%). BIPL’s eight-member board of directors (BoD) including CEO constitutes representatives of sponsoring groups. Mr. Syed Amir Ali joined bank as Deputy CEO in Apr-18. He has taken up the position of 'President & CEO' in Oct-18. He is a Chartered Accountant and CFA Charter holder, carrying more than one-decades of Islamic Banking experience mainly of Meezan Bank.

About the Instrument
The Bank is planning to issue perpetual, Unsecured, Subordinated, Non-cumulative and contingent, convertible listed Mudaraba Sukuk Additional Tier 1 Capital, TFCs of PKR 2.0bln (including green shoe option of PKR 500mln). Profit rate would be 3M-KIBOR+ 275bps points. The bank will approach investors through private placement as well as IPO. The profit will be calculated based on predetermined pre-specified rate and monthly weightages announced before beginning of each month and distributed Sukuk holders monthly as per the Pool Management guidelines issued by SBP. Upon reaching point of non-viability (PONV), at its option, fully and permanently convert the Additional Tier 1 Capital into common shares of the issuer and / or have them immediately written off (partially or full). Sukuk is subject to lock in clause which stipulates that no payments will be made result in shortfall in the issuer’s MCR, CAR and LR.