November 20, 2019: VIS Credit Rating Company has assigned a preliminary rating of ‘AA’ to planned Tier 2 Sukuk issue of Meezan Bank Limited (MBL). Outlook on the assigned rating is ‘Stable’.
According to the press release issued by VIS, the bank is in the process of issuing the second tranche of a regulatory compliant unsecured, subordinated privately placed Tier 2 Sukuk amounting up to Rs. 4 billion. The Issue proceeds will contribute towards the Bank’s Tier-2 capital and will be utilized towards enhancement of the bank’s business operations.
The assigned rating incorporates MBL’s strong Islamic franchise, growing market share, sound financial profile, and stable and experienced senior management team.
As of end-September 2019, MBL’s asset base crossed Rs. 1 trillion while equity stood at Rs. 46.8 billion. VIS has assigned an entity rating of ‘AA+/A-1+’ to MBL. Assessment of financial profile incorporates the following factors:
· Despite continuous branch expansion, volumetric growth in earning assets, higher fee-based income and spread improvement have translated into a 75% increase in profit after tax during 9MCY19. Profitability growth was highest in the banking sector while the cost to income ratio has improved from last year and is comparable to efficient large banks.
· Strong liquidity profile as evident from sizeable, granular and cost-effective deposit base. The customer base has depicted healthy growth while the liquidity buffer has increased on a timeline basis.
· Despite a slight increase in NPLs, asset quality indicators remain sound and compare favorably to peer banks. Provisioning coverage remains strong at 136% at end-Sep’2019.
· Capitalization indicators supported by healthy internal capital generation and the decline in risk-weighted assets. Tier 1 and overall CAR were reported at 14.67% (2018: 12%) and 17.63% (2018: 14.6%), respectively as at end-Sep’2019. Issuance of the second tranche of Basel 3 compliant Tier 2 Sukuk to further strengthen capitalization buffers.