JCR-VIS Reaffirms Entity Ratings of Meezan Bank Limited at AA/A-1+

June 3rd, 2016

JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Meezan Bank Limited (MBL) at ‘AA/A-1+’ (Double A/A-One Plus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 29, 2015.

Ratings of MBL reflect its healthy customer franchise which has allowed the bank to build a sizeable, cost effective and granular deposit base. MBL has pursued an aggressive branch expansion strategy which has allowed the bank to increase its footprint and market share in banking sector deposits. Ratings also incorporate strong liquidity profile, improving asset quality indicators and sound governance infrastructure. The senior management team has largely depicted stability; important for continuity in implementation of the business strategy laid down for the bank.

In line with branch expansion strategy being undertaken by the bank, total deposits have witnessed sizeable growth. Depositor concentration level is amongst the lowest and proportion of retail deposits is amongst the highest in the industry. Financing portfolio has showcased healthy growth; corporate segment continues to represent the highest share in the portfolio. Selective growth within the consumer and commercial segments is being pursued for broadening the client base. Although risk profile of loan book remains sound on account of large exposures being taken against top-tier entities, financing portfolio continues to feature concentration. Overall infection indicators have witnessed improvement in the outgoing year; gross infection stands at one of the lowest levels in the industry while provisioning coverage has been maintained on the higher side in relation to peers. Given the growth strategy being pursued, portfolio concentration and infection levels would be tested over time.

Liquidity profile of the bank is considered strong. Limited avenues for deployment of funds continue to pose liquidity management challenges. As a result, exposure to relatively low yielding assets, such as placement with financial institutions based on Bai Muajjal has depicted sizeable increase. Despite decline in interest rates and aggressive branch expansion, profitability of MBL depicted growth during CY15 on account of volumetric growth in earning assets as well as improving spreads.

Cushion of Capital Adequacy Ratio (CAR) against regulatory limit has narrowed on account of sizeable growth in Risk Weighted Assets. In the backdrop of increasing CAR requirements by the regulator, management is making efforts to enhance capitalization levels.

For further information on this rating announcement, please contact the undersigned at (Ext: 501) or Mr. Mohammed Khalid Ali (Ext: 508) at 021-35311861-71 or fax to 021-35311872-3.

Applicable rating criterion: Commercial Banks Methodology – November 2015