Press Release

JCR-VIS Reaffirms Entity Ratings of Meezan Bank Limited at AA/A-1+

Karachi, June 24, 2014: JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of Meezan Bank Limited (MBL) at ‘AA/A-1+’ (Double A/A-One Plus). Outlook on the assigned ratings is ‘Stable’.

Islamic Banking Industry (IBI) in Pakistan continues to post robust growth with market share of over 10% at year-end 2013 in terms of deposits. The growth trajectory is likely to continue with the State Bank of Pakistan envisaging increase in market share of IBI to 15% by year-end 2018, as per the recently launched five year strategic plan. Liquidity management remains a challenge for Islamic banks, in the absence of short term Shariah Compliant instruments and only a limited issuance of GoP Ijarah Sukuk after a gap of more than 1 year.

The ratings of MBL reflect a healthy customer franchise and a solid funding base, largely comprising cost effective retail deposits. Accordingly, deposit concentration is low while liquidity remains sound. Ratings also draw strength from the strong asset quality indicators. Although core earnings have witnessed a decline as cost to income ratio has increased, overall profitability levels have improved. Accordingly, return on equity posted by MBL was amongst the highest in the banking sector.

MBL has posted impressive growth in asset base over the last five years with total assets of the bank increasing at a CAGR of 31% over this period. Growth in asset base has been funded by deposits on the back of rapid branch expansion. Financing portfolio has also witnessed healthy growth in 2013, manifested in reputed names. Asset quality indicators compare favorably to peers. Liquidity is strong but not easy to manage because of lack of avenues for deployment. Resultantly, exposure towards relatively low yielding assets, such as placements with financial institutions, has showed a rising trend.

As part of the bank’s strategic blue print, rapid branch expansion is planned to continue with the addition of 150 additional branches over the course of the next three years. Deposit base is projected to reach Rs. 500b by end-2016 while financing to deposit ratio is targeted at 50%. This implies that financing portfolio will be doubled over the next three years; this may be a challenging target and achievement of the same depends on economic environment. Anticipated growth in balance sheet is expected to mitigate the impact of narrowing margins on profitability. Capitalization levels of the bank are considered adequate. As per management, internal capital generation is expected to be sufficient to achieve the planned growth in business without affecting the bank’s risk profile.

During the ongoing year, MBL has entered into an agreement with the HSBC Bank Middle East Limited, an indirect wholly-owned subsidy of HSBC Holdings Plc, to acquire HSBC’s banking business in Pakistan through a process of amalgamation. At year-end 2013, HSBC Pakistan business comprises 10 branches and total assets of Rs. 48 billion. MBL expects value addition to arise from the acquisition of HSBC’s clientele in Pakistan.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 501) or Ms. Sobia Maqbool, CFA (Ext: 604) at 92-21-35311861 or fax to 92-21-35311873.

Javed Callea

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited JCR-VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.JCR-VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.JCR-VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2014 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited