August 2nd, 2018
JCR-VIS Credit Rating Company Limited has upgraded the entity ratings of Meezan Bank Limited to ‘AA+/A-1+’ (Double A Plus/A-One Plus). JCR-VIS has also upgraded ratings of the outstanding Basel 3 Compliant Sukuk ratings of Meezan Bank to ‘AA’ (Double A) from ‘AA-‘(Double A Minus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 22, 2017.
The assigned ratings to Meezan Bank incorporate the Bank’s dominant position in the Islamic banking industry with the Bank having a market share of around 36% in total Islamic banking deposits. Ratings also reflect Meezan Bank’s healthy customer franchise which has resulted in strong growth with deposits recording a 5 year CAGR of 23.9% (Industry deposit growth of 13.1%) resulting in continuous increase in overall market share to 5.4% (2016 : 5%) at year end 2017. Deposit base largely comprising cost effective retail deposits. Besides increasing market share, rating upgrade takes into account strong asset quality indicators, improving operational efficiency and projected increase in capitalization buffers. Ratings also take into consideration the strength and stability of the senior management team spearheaded by the founding President & Chief Executive Officer.
Broad based growth in financing portfolio was witnessed in the outgoing year with Corporate, Commercial & SME (CBSME) and Consumer financing portfolio increasing by 29%, 53% and 48%, respectively, during 2017. Moreover, overall trade business of the Bank recorded an increase of 29% and crossed Rs. 700 billion in 2017 putting it amongst the leading players in peer banks in terms of trade business. Asset quality indicators compare favourably to peer banks with gross infection ratio at 1.54% and provisioning coverage at 133%. Given the aggressive growth in financing portfolio, mid-term economic scenario and policy rate regime, maintaining asset quality indicators in line with benchmarks for the assigned ratings is considered important.
Net investment portfolio of the Bank represents around 15% of the total asset base. Investments include strategic stake in Al Meezan Investment Management Limited (AMIML). AMIML is a leading player in the asset management industry enjoying strong franchise and financial profile.
In 2017, Meezan Bank completed a 6% Right Issue of shares to the existing shareholders resulting in an equity injection of Rs. 3billion. This along with retained profits resulted in growth in net equity base of the Bank. Tier-1 Capital Adequacy Ratio (CAR) and leverage ratio improved on a timeline basis. Going forward, sizeable increase in total eligible capital is planned over the next two years through a combination of internal capital generation and external sources including issuance of Basel 3 compliant Capital Instruments. In this regard, Meezan Bank is in the process of issuing Additional Tier 1 Sukuk and is currently seeking subscription from the investors. Maintaining cushion over regulatory CAR requirement in line with benchmarks for the assigned ratings is considered important for maintaining the assigned ratings.
Profit before tax witnessed a growth of 14.6% and 28% during 2017 and 1Q18, respectively. Growth in profitability was driven by volumetric growth in earning assets and increase in fee based income due to higher income from Alternate Delivery Channels and trade business. With higher volumetric growth projected vis-à-vis peer banks (due to aggressive branch expansion pursued over the last few years) and increasing benchmark rates, profitability of Meezan Bank is projected to depict strong double digit growth over the medium term.