Press Release

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

Karachi, Jun 28, 2019: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Meezan Bank Limited (MBL) at ‘AA+/A-1+’ (Double A Plus/ A-One Plus). VIS has also reaffirmed ratings of the outstanding Basel 3 Compliant Tier 1 and Tier 2 Sukuk of MBL at ‘AA-’ (Double A Minus) and ‘AA’ (Double A) respectively. Outlook on the assigned ratings is ‘Stable’. The previous rating action on the entity was announced on May 30, 2018.

The assigned ratings incorporate MBL’s dominant market positioning, particularly in the Islamic banking market, and strong franchise value. Furthermore the ratings also incorporate the strength and stability of the senior management team spearheaded by the founding President & Chief Executive Officer. In 2018, MBL outgrew the domestic private banks and the industry at large, wherein MBL’s market share - in terms of assets and as of year-end 2018 - stood at 6.3% (Dec’17: 5.6%) and 4.8% (Dec’17: 4.3%) respectively. The asset growth arose from the strong performance in the deposit market.

In comparison to peers, MBL’s profit strategy focuses on financing; accordingly, the ADR of MBL is higher vis-à-vis peers. Even though corporate financing remains the mainstay of the bank’s financing operations, constituting two-thirds of the financing portfolio, healthy growth has been witnessed in CBSME (Commercial Banking & Small & Medium Enterprises) and Consumer Financing portfolios.

Despite a rising credit risk environment - prevalent in the latter half of 2018 and continuing into the ongoing year - MBL has been able to maintain its asset quality. As of Dec’18, MBL’s gross infection stood at 1.3%, with coverage ratio against NPLs to the tune of 1.39x. However, given the strong focus on corporate clientele, the portfolio does depict counterparty concentration. Albeit, some comfort can be derived from fact that much of these exposures are government guaranteed, whilst the remaining are outstanding against a corporate blue-chip clientele. Given the heightened credit risk environment, some credit impairment is expected over the short to medium term horizon, which will test MBL’s underwriting quality. So far, as of Mar’19, the gross NPLs were almost at the same level as year-end 2018.

On the profitability front, MBL’s net profit increased by 42% to Rs. 9.0b (2017: Rs. 6.3b). The growth in profitability mainly arose from the volumetric growth in financing portfolio, along with a ~50bpts increase in spread and a healthy growth in fee & commission based income; the latter mainly attributable to MBL’s superior performance in trade financing operations. The bank’s trade finance volume crossed the trillion rupee mark in 2018. On the backdrop of ongoing branch expansion, MBL’s expense base increased by 16%. Despite the increase in expense base, MBL was able to reduce the efficiency ratio to 55%, which is well placed within the peer group. MBL’s branch network is now spread across 676 branches. Consequently, the bank is positioned as the seventh largest bank in Pakistan.

MBL’s CAR stands comfortably above the regulatory requirement and complies with our criteria for ‘AA+’ rated banks. Further reinforcement of capital buffers is on the anvil, given plans to issue another Basel 3 compliant Tier 2 Sukuk instrument within the ongoing year. The ratings are dependent upon continued maintenance of the control environment, asset quality and sound capital buffers.

For further information on this rating announcement, please contact the undersigned at (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.

Javed Callea

Applicable rating criterion: 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 not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited