Lahore, VIS Credit Rating Company Ltd. (VIS) has reaffirmed strong entity and instrument ratings for Dubai Islamic Bank Pakistan Limited (DIBPL), reflecting its solid financial footing and strategic management despite a challenging macroeconomic environment.
According to VIS Credit Rating Company Limited, the reaffirmation includes an entity long-term rating of 'AA' and a short-term rating of 'A-1+', indicating high credit quality and the highest certainty of timely payments, respectively. The ratings for the bank's Tier II Sukuk and Additional Tier I Sukuk are also maintained at 'AA-' and 'A+', showcasing strong protection factors and substantial creditworthiness. The outlook for these ratings remains stable, consistent with the previous year’s assessment.
The ratings are bolstered by the sound profile of the bank's sponsor, Dubai Islamic Bank (DIB), which has provided consistent financial support and technical knowledge transfer. This support is crucial, especially given DIB's strong standalone ratings by the Islamic International Rating Agency (IIRA). DIBPL's alignment with its parent company's robust risk management frameworks and operational strategies has been a key factor in maintaining its rating.
DIBPL's financial portfolio showed limited growth due to the current economic conditions and a cautious lending strategy with a heightened focus on the corporate segment to manage credit risk effectively. Although there was an increase in non-performing finances, the bank's asset quality remains adequate, supported by sufficient provisioning.
The bank’s liquidity metrics, while lagging behind some medium-sized peers, are still adequate, with a significant focus on maintaining a higher Advances to Deposits Ratio (ADR) than industry trends. This strategy involves shedding higher-cost deposits in favor of increasing low-cost retail current deposits, aligning with management's emphasis on cost efficiency.
Investments during the period were largely directed towards government and foreign debt securities, with inherent risks well-managed through predominance in short-term government instruments. Despite the potential volatility of the rupee and inherent market and foreign currency risks, DIBPL has effectively mitigated these through strategic funding of these investments with foreign deposits.
Profitability saw a significant improvement due to better spreads and enhanced efficiency, despite higher provisioning costs. Capitalization also improved, primarily due to profit retention, which will remain a crucial factor for maintaining the bank's rating in the future.
VIS notes that going forward, DIBPL's ratings will be sensitive to any changes in its liquidity position, asset quality, profitability, and capitalization, underscoring the need for ongoing stringent financial management and strategic planning.