Press Release

VIS Reaffirms Entity & Instrument Ratings of Dubai Islamic Bank Pakistan Limited

Lahore, June 27, 2024: VIS Credit Rating Company Ltd. (VIS) has reaffirmed the entity ratings of ‘AA/A-1+’ (Double A /A-One Plus) assigned to Dubai Islamic Bank Pakistan Limited (‘DIBPL’ or ‘the Bank’). Long-term rating of ‘AA’ denotes high credit quality with strong protection factors; risk is modest but may vary slightly from time to time because of economic conditions. Short-term rating of ‘A-1+’ indicates highest certainty of timely payments; short term liquidity, including internal operating factors and/or access to alternative source of funds, is outstanding and safety is just below risk-free Government of Pakistan’s short-term obligations. The instrument ratings assigned to the Bank’s Tier II Sukuk and Additional Tier I (ADT-1) Sukuk have been reaffirmed at ‘AA-’ (Double A Minus) and ‘A+’ (Single A Plus), respectively. Outlook on the assigned ratings is ‘Stable’. The previous entity and instrument rating actions were announced on June 26, 2023.

The assigned ratings incorporate the sound profile of the sponsor, Dubai Islamic Bank (DIB). Parent support has been witnessed over time both in the form of financial support and technical knowledge transfer. Ratings also draw comfort from the standalone ratings of DIB, rated ‘A+/A1’ (Single A Plus / A One) on the international scale and ‘AA (ae)/A1+(ae)’ on the national scale by the Islamic International Rating Agency (IIRA).

DIBPL’s gross financing portfolio remained largely stagnant over the rating review period on account of the challenging macroeconomic environment and the management’s cautious lending strategy; higher focus towards the corporate segment was witnessed to manage credit risk. However, accretion in non-performing finances was witnessed with higher gross infection on a timeline basis. Nevertheless, asset quality remained adequate with low net infection owing to adequate incremental provision. The Bank’s Advances to Deposits Ratio (ADR) remained higher compared to industry trends, on account of decrease in deposit base due to shedding of relatively high-cost deposits. Resultantly, the proportion of low-cost funding sources relative to total deposit base increased in sync with the management’s focus on retail current deposits. Liquidity metrics, albeit adequate, continued to lag medium-sized peers.

The Bank channeled liquidity largely toward investments in government and foreign debt securities. The overall credit and market risk of the investment portfolio is considered manageable owing to dominance of short-term government instruments. However, as the majority of foreign securities are fixed rate instruments and the rupee may remain volatile, inherent market and foreign currency risks are present; as per management, these investments are funded by foreign deposits which help mitigate the aforementioned foreign currency risk. The profitability enhanced markedly due to uptick in spreads and improvement in efficiency despite higher provision charge. Improvement in capitalization has been witnessed on timeline basis primarily on the back of profit retention. Going forward, maintenance of an adequate cushion above minimum CAR requirement would remain an important rating parameter. Going forward, the ratings will remain sensitive to improvement in liquidity and gross infection levels as well as maintenance of profitability and capitalization indicators.

For further information on this ratings announcement, please contact at 042-35723411-13 or email at info@vis.com.pk.

Applicable rating criterion: Financial Institution
https://docs.vis.com.pk/Methodologies%202024/Financial-Institution-v2.pdf

Applicable rating criterion: Rating the Issue
https://docs.vis.com.pk/docs/Rating-the-Issue-Aug-2023.pdf

VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .