VIS reaffirms entity ratings of Meezan Bank at AA+/A-1+

VIS Credit Rating Company Limited (formerly JCR-VIS Credit Rating Company Limited) has reaffirmed the entity ratings of Meezan Bank 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 Meezan Bank 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 Meezan Bank'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 and Chief Executive Officer. In 2018, Meezan Bank outgrew the domestic private banks and the industry at large, wherein Meezan Bank'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 percent) respectively. The asset growth arose from the strong performance in the deposit market.
In comparison to peers, Meezan Bank's profit strategy focuses on financing; accordingly, the ADR of Meezan Bank 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 - Meezan Bank has been able to maintain its asset quality. As of Dec'18, Meezan Bank'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 Meezan Bank's underwriting quality. So far, as of Mar'19, the gross NPLs were almost at the same level as year-end 2018.