VIS reaffirms entity ratings of Meezan Bank

June 28, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Meezan Bank Limited (PSX:  MEBL) at ‘AAA’ for long-term and ‘A-1+’ for the short term with a stable future outlook, the latest press release issued by VIS showed.

The medium to long-term rating of ‘AAA’ denotes highest credit quality, with negligible risk factors, being only slightly more than for risk-free debt of the Government of Pakistan (GoP).

The short-term rating of ‘A-1+’ denotes the highest certainty of timely payment; short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding and safety is just below risk-free short-term obligations of GoP.

The assigned rating incorporates the strong market positioning and franchise of MEBL.

MEBL is the first and largest Islamic commercial bank in Pakistan.

As of Mar’23, MEBL has strengthened its position, becoming the 4th largest bank in terms of deposits and the 3rd largest in terms of financings, with a market share of 7.60% and 8.87% respectively.

Moreover, with a network of 972 branches operating in 324 cities across Pakistan, MEBL has significantly expanded its operations in the past decade.

The financing and investment portfolio has become the dominant asset class, accounting for 85.2% (Dec’21: 72.4%) of total assets as of Mar’23.

The bank's financing-to-deposit ratio (FDR) has increased, reflecting its strong position in utilizing deposits for financing activities.

MEBL's liquidity profile remains strong, with the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) being comfortably high.

The bank's gross infection rate of 1.47% as of Mar’23 is the lowest among large banks in Pakistan.

MEBL is well-positioned to navigate emerging credit risk concerns due to its exposure to blue-chip clients and substantial provisioning coverage.

Despite prudent provisioning, MEBL's financial performance in 2022 was commendable, driven by wider spreads and improved return on average assets (RoAA).

The bank achieved significant growth in spread income, supported by higher deployed assets and low-cost deposits.

Profitability was further enhanced by fee and commission income. MEBL’s RoAA was the highest amongst ‘Large Banks’.

MEBL's strong asset quality indicators and high provisioning coverage are expected to limit additional provisioning costs, leading to further earnings growth in 2023.

The bank's capitalization buffers are supported by strong profitability and a lower payout ratio.

MEBL's capital adequacy ratio (CAR) is expected to remain comfortable, underpinned by robust internal capital generation, strong credit quality, and lower exposure to market risk compared to its peers.

Copyright Mettis Link News