VIS upgrades entity ratings of Meezan Bank to AAA/A-1+

KARACHI: VIS Credit Rating Company Limited has upgraded the entity ratings of Meezan Bank Limited to ‘AAA/A-1+’ (Triple A/A-One Plus) from ‘AA+/A-1+’ (Double A Plus/A-One Plus), a statement said on Thursday.

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

The short-term rating of ‘A-1+’ denotes the highest certainty of timely payment, liquidity factors are outstanding and safety is just below risk-free short-term obligations of the government of Pakistan.

VIS has also upgraded the ratings of the outstanding Basel 3 Compliant Tier 1 and Tier 2 Sukuk of MEBL to ‘AA’ (Double A) and ‘AA+’ (Double A Plus), respectively.

The outlook on the assigned ratings is ‘Stable’. The previous rating action on the entity was announced on June 30, 2020.

The upgrade in MEBL’s credit rating to the highest credit quality is underpinned by MEBL’s market positioning in the Islamic banking segment, as the largest bank holding 37 per cent of the segment deposits as of December 2020, and in the banking sector, at large, being the fourth largest, in terms of domestic deposits and financings.

The statement also said given the aforementioned market positioning in the sector and the Islamic banking segment, VIS considers MEBL to be a dominant player in the domestic banking sector, right behind the Top three banks designated by the State Bank of Pakistan (SBP) as Domestic-Systemically Important Banks (D-SIBs).

At present, the central bank classifies MEBL as a Sample D-SIBs, and in accordance with its guidelines, MEBL has successfully complied with the State Bank of Pakistan’s enhanced supervisory requirements since 2018. MEBL has achieved its market positioning on the back of consistently stronger growth in deposit growth vis-à-vis industry.

In 2020, MEBL’s deposit growth was roughly double the industry growth. The bank has consistently grown its branch network, which stood at 825 as of March 2021 and several initiatives on the digitalisation front, translating in a strong franchise value for MEBL.

At present, MEBL’s deposit market share stands relatively lower than D-SIBs, albeit given the strong growth in the Islamic banking deposits and MEBL’s own historical growth, VIS expects this gap to reduce over time.

MEBL’s capitalisation metrics have continued to depict improvement on the back of strong profitability, adequate profit retention, and deployment of excess liquidity in the low risk weight assets.

As of March 2021, the bank was maintaining a comfortable cushion over the minimum CAR requirement, set by the SBP for D-SIBs, the statement said, adding that the assigned rating remains dependent on the maintenance of asset quality and capital adequacy, while continuation of strong growth trend and improvement in the market positioning has also been factored in the assigned rating.

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