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The Pakistan Credit Rating Agency Limited

Jhangeer Hanif

Saliha Sajid

Applicable Criteria

  • Debt Instruments Rating Methodology (Jun 17) [View]
  • Correlation between long-term and short-term rating scale (Jun 17) [View]
  • Methodology | Bank Rating (Jun 17) [View]

Related Research

  • Sector Study | Commercial Bank (Jun 17) [View]
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PACRA Maintains Entity Ratings of BankIslami Pakistan Limited
 Rating Type Entity
 Action Maintain Maintain
 Long Term A+ A+
 Short Term A1 A1
 Outlook Developing Developing
 Rating Watch RatingWatch -

The ratings reflect BankIslami's established position in the country's Islamic banking space. With the acquisition of defunct KASB Bank in May 2015, BankIslami's system share in deposits improved (6MCY17: 1.2%). Post-acquisition, BIPL had faced significant withdrawal of deposits, owing to removal of moratorium imposed on defunct KASB Bank. However, same was managed successfully. Moreover, this acquisition resulted in i) increase in footprint, ii) deposit base, and iii) strategic investment book. The Bank also inherited carried forward tax losses and a sizeable portfolio of non-performing assets; that has its own challenges. To compensate the Bank for negative net worth of the defunct KASB Bank, it was also provided low cost subordinated loan facility from SBP; supporting Bank's revenue and CAR. Although BankIslami has enhanced deposit base, yet risk of withdrawal from key depositor acquired through amalgamation (representing 12% in total deposit) remains. Given time required to fully absorb defunct KASB Bank related costs, operational performance is yet to stabilize. Meanwhile, recoveries from non-performing loans is essential. The management, while synergizing on enhanced outreach intends to pursue growth.
The ratings require sustainable improvement in BankIslami’s operational performance, in turn, maintaining positive trend in bottom-line. At the same time maintaining a strong capital adequacy while pursuing growth is important. Any downward spiral in profits, or incidence of non-performing assets with consequent impact on equity may negatively impact the ratings. Meanwhile, ratings remain on Watch to monitor profitability from core operations and manage any unforeseen issues related to defunct KASB Bank.
About the Entity
BIPL, a scheduled Islamic bank, commenced operations in Apr-06 and is listed on the Pakistan Stock Exchange. BankIslami Pakistan Limited acquired defunct KASB Bank Limited, which stands merged with and into BankIslami effective May 07, 2015. Post-acquisition, BIPL has a branch network of 322 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 board of directors (BoD) comprises eight members including CEO and two independent directors. Mr. Hasan A. Bilgrami, the founding CEO and possessing experience with leading
financial institutions, has been instrumental in the development of the bank and stays as the key resource. He is supported 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.