PACRA Assigns Preliminary Rating of BankIslami Pakistan Limited | Modaraba Sukuk | Additional Tier 1 | TBI

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.
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 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 decade of Islamic Banking experience mainly at Meezan Bank. He is assisted by an able team.

About the Instrument
The Bank is in process of issuing rated, perpetual, unsecured, subordinated, non-cumulative and contingent convertible listed Modaraba Sukuk Certificates ("Sukuk") of PKR 1bln (including green shoe option of PKR 200mln) to contribute towards the bank’s Tier I capital for complying with the Capital Adequacy Ratio (CAR) requirement prescribed by the SBP for Commercial Banks. The instrument is perpetual. The profit will be payable monthly, with the rate of 1MK+250bps. 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.