Karachi, June 29, 2022 (PPI-OT):VIS Credit Rating Company Ltd. (VIS) has reaffirmed entity ratings of ‘AA/A-1+’ (Double A /A-One Plus) to Dubai Islamic Bank Pakistan Limited (DIBPL). Outlook on the assigned ratings is ‘Stable’. The rating assigned to the Bank’s Tier II Sukuk and Additional Tier I (ADT-1) Sukuk has been reaffirmed at ‘AA-’ (Double A Minus) and ‘A+’ (Single A Plus) respectively. The previous entity rating action was announced on June 30, 2021.
Ratings assigned to DIBPL incorporate sound profile and demonstrated track record of the sponsor, Dubai Islamic Bank (DIB), the largest Islamic bank operating in UAE. In August 2021, DIB was upgraded to ‘A+/A-1’ (Single A Plus/A-One) by Islamic International Rating Agency (IIRA), reflecting the completion of integration with Noor Bank, strong organic asset growth, maintenance of asset quality and better than peers’ profitability indicators.
In 2021, DIBPL asset base recorded steady growth, fairly in line with last year, led by increase in deposit base and borrowings. While asset mix over time depicts a shift towards investment portfolio, Advances to Deposit Ratio (ADR) remains on the higher side, relative to peers. Financing portfolio in 2021 grew slightly lower than the industry, leading to a nominal change in market share. Exposures comprise of largely private sector, mid-tier clients, concentrated in Textiles, Food and Beverages and Power and Oil and Gas sectors.
Asset quality indicators have recorded a decline over time, although they remain better than peer average. Going forward, on account of heightened credit risk environment and large private sector ADR of the Bank, we expect credit risk of the financing portfolio to remain elevated. On the other hand, credit and market risk emanating from investment portfolio is considered manageable given sizable exposure in securities featuring sovereign guarantee and majority parked in floating instruments.
Deposits of the Bank grew fairly and maintained its deposit market share. Deposits growth largely emanated from increase in low-cost current and savings deposits which is viewed favourably from ratings perspective. Cost effective funding base together with cost-efficient structure of the Bank vis-a-vis its peer average provides comfort to ratings. Liquid assets to Deposit and Borrowings, however remain adequate and presents room for improvement in line with peer average.
DIBPL’s profitability in 2021 was supported by growth in non-markup income and one-off capital gains incurred on sale of securities, which was partly offset by additional general provisioning booked by the bank. Equity base continued to record improvement supported by higher capital generation and full profit retention. DIBPL’s capital adequacy remains adequate, at present, in view of the quantum of cushion above the minimum requirement, albeit depict a decline on a timeline basis. Going forward, recuperation in capital adequacy levels, in line with the assigned benchmarks as well as maintenance of asset quality and profitability metrics and continued improvement of liquidity metrics is considered important from a rating perspective.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/