Pakistan Credit Rating Agency Limited maintains entity ratings of BankIslami Pakistan Limited

Lahore, October 25, 2016 (PPI-OT):The Pakistan Credit Rating Agency Limited (PACRA) has maintained the long-term and short term entity ratings of BankIslami Pakistan Limited (BIPL) at “A+” (Single A plus) and “A1″(A One). The ratings denote a low expectation of credit risk and a strong capacity for timely payment of financial commitments.

The ratings reflect BankIslami’s established position in the country’s Islamic banking space. With the acquisition of erstwhile KASB Bank in May 2015, BankIslami’s system share in deposits improved. Post acquisition, BIPL had faced significant withdrawal of deposits, owing to removal of moratorium imposed on erstwhile 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 and opportunities. 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 13% in total deposit) remains. Given time required to fully absorb KASB Bank related costs, operational performance is under pressure. Meanwhile, recoveries from non-performing loans provide support and lately BIPL has started progressing to achieve profitability. The management, while synergizing on enhanced outreach intends to pursue growth.

The ratings require sustainable improvement in 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 may negatively impact the ratings. Meanwhile, ratings remain on Watch to monitor ascend forward profitability from core operations and manage any unforeseen issues related to erstwhile KASB Bank.

For more information, contact:
Hammad Rashid
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425