The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Upgrades Entity Ratings of BankIslami Pakistan Limited

Rating Type Entity
(24-Jun-23 )
(24-Jun-22 )
Action Upgrade Maintain
Long Term AA- A+
Short Term A1 A1
Outlook Stable Positive
Rating Watch - -

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 there are mentionable players which are taking the lead. BIPL is fast rising in this space. During CY22, the Bank’s net profitability increased to PKR 4.4bln, attributable to an impressive increase in markup earned. The net markup income doubled and clocked in at PKR 20.4bln (CY21: PKR 10.9bln). The Bank’s spread ratio displayed an improvement to 6.0% (CY21: 3.8%). During 1QCY23, there was phenomenal jump in profitability; the PBT stood at PKR 3.1bln and PAT stood at PKR 1.7bln, enabled by higher spreads 7.0%. 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 addition tilted towards current and term deposits. With the execution of operational efficiency, during CY22, the Bank’s CAR rose to 17.9% (CY21: 14.1%). 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 commendable improvement. In the future, it will be crucial to carry out the Bank’s business plan while enhancing the effectiveness of the risk management framework to raise asset quality. The bank has designed an array of product suites, catering to different needs of the customers. In a few areas of lending, the bank stands at a distinguished position. The Bank’s current areas under focus include growth in the current account, improve deposit per branch ratio, enhancement of the financing portfolio, cash management and employee banking, ensuring regulatory compliance, branch expansion, and increasing digital footprint through revamped digital delivery channels.
The banking sector has continued to flourish with high profitability. Going forward, the macro-economic 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 380 branches as at Dec-22. BIPL has three prominent sponsors namely JS & Co. Limited, the Randeree family, and Mr. Ali Hussain. All these have a collective holding of around 73% in the bank and predominantly direct the affairs of the BIPL’s board. BIPL’s eight-member board of directors (BoD) including the CEO constitutes representatives of sponsoring groups and independent directors. Mr. Syed Amir Ali is the ‘President & CEO' since Oct-18. He is a Chartered Accountant and CFA Charter holder, carrying more than 20 years of Islamic Banking experience mainly at Meezan Bank. He is assisted by an able team.

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.