Press Release

VIS Reaffirms Ratings of Dubai Islamic Bank Pakistan Limited

Karachi, June 30, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Dubai Islamic Bank Pakistan Limited (‘DIBPL’ or ‘the Bank’) at ‘AA/A-1+’ (Double A/A-One Plus). The rating assigned to the Bank’s Tier II Sukuk and Additional Tier-1 (ADT-1) Sukuk has been reaffirmed at ‘AA-’ (Double A Minus) and A+ (Single A Plus) respectively. Outlook on the assigned ratings is ‘Stable’. The previous entity rating action was announced on June 28, 2019.

The assigned ratings incorporate strong financial profile and track record of demonstrated support of the sponsor, Dubai Islamic Bank PJSC, UAE (DIB). Subsequent to its acquisition of Noor Bank, DIB has established itself as one of the two largest Islamic Banking Institutions in the world.

In 2019, DIBPL’s asset growth surpassed the industry, on the back of strong growth in deposits and continuing trend of full profit retention. The asset mix remaining financing-centric. Even though the ADR was reduced in Q1’20, it still stands on the higher side relative to peers Amidst a heightened credit risk environment, asset quality indicators have been impacted, albeit remained compliant with the criteria for the assigned rating band. Going forward, the oncoming pandemic-induced headwinds are expected to test the portfolio asset quality. So far, SBP has taken notable measures to ensure continued credit supply to the economy and maintain confidence in the banking system to ease the expected credit crisis, resulting from the pandemic. These measures are expected to delay the impact of prevailing headwinds on portfolio asset quality indicators. The operating environment remains challenging, amidst intermittent lock downs, due to Covid-19, with no definite deadline. In view of the same, the full impact of the pandemic on the banking industry is uncertain.

DIBPL’s profitability indicators depicted improvement in 2019, on the back of volumetric growth in earning assets, improvement in spreads and higher other income (FX income & Capital gain on securities portfolio). The bank’s liquid metrics, although having improved on a timeline, lag peer median. Given strong growth in recurring income, the Bank’s efficiency ratio has continued to depict improvement, and compares favorably to the peer median.

Going forward, sector-wide profitability is expected to weaken on account of projected spread shrinkage, increased credit impairment charge (both on account of Covid-19 and IFRS-9 related), and lower fee income on account of depressed economic activity. In view of the same, the Bank’s capital adequacy may come under pressure. However, capitalization buffers, built up over the past few years, are expected to provide adequate cushion to absorb projected credit impairment. Our credit impairment expectations are conservative, albeit downside risk is elevated, amidst an uncertain economic environment.

The assigned ratings remain dependent on maintenance of asset quality, profitability and capitalization metrics, while improvement of liquidity metrics is considered important from a rating perspective. VIS will continue to closely monitor the Bank’s performance metrics on quarterly basis.

For further information on this rating announcement, please contact Mr. Arsal Ayub (Ext: 214) at 92-21-35311861 or fax to 92-21-35311873.

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Commercial Banks Methodology - March 2018

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (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.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.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 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited