JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Meezan Bank Limited at ‘AA/A-1+’ (Double A/A-One Plus). JCR-VIS has also reaffirmed Sukuk rating of Meezan Bank at ‘AA-’ (Double A Minus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 02, 2016.
The assigned ratings to Meezan Bank incorporate the bank’s healthy customer franchise and a sound funding base, largely comprising cost effective retail deposits. Ratings also reflect strong asset quality indicators and adequate capitalization levels. Meezan Bank continues to dominate the Islamic Bank Industry in the country having a market share of 36% in total Islamic banking deposits. With aggressive branch expansion pursued over the last 5 years, branch network has more than doubled to 571 (2011: 275) branches as at end-Dec’2016. Resultantly, deposit base has grown at a CAGR of 27% over the last five years and market share in total banking deposits has increased to 5% (2016: 4.9%; 2011: 2.9%).
Gross financing portfolio of the bank witnessed a growth of 48% during 2016. While corporate portfolio continues to represent three-fourth of financing portfolio, management continued to diversify its lending operations with sizeable growth in consumer and commercial & SME segment. Asset quality indicators compare favourably to peer banks. Maintaining asset quality indicators in line with benchmarks for the assigned ratings is considered important.
Despite pressure on spreads, profit before tax increased by 5.8% during 2016. Although, efficiency (cost to income) ratio for full year 2016 was higher as compared to 2015, this has depicted an improvement during 1Q17 vis-à-vis 1Q16 and is primarily attributable to increase in fee income. Growth in fee income was supported by increase in income from Alternate Delivery Channels and healthy growth in trade and remittance business. In the backdrop of forecasted mid-term economic scenario, policy rate regime and low lending rates due to excess liquidity, spreads and profitability growth of the banking sector are expected to remain under pressure during 2017.
Equity base of the bank has consistently grown over the last five years with average rate of internal capital generation being 11.5%. While remaining above regulatory requirements, Tier-1 CAR and leverage declined on a timeline basis with significant growth in financing portfolio. However, overall CAR increased with issuance of Tier-2 Sukuk in the outgoing year. In the backdrop of increasing Tier-1 and overall CAR requirements, maintaining buffer over regulatory requirement in line with benchmark for the assigned ratings as also the continuity of asset quality indicators would be important rating drivers.