Meezan Bank outsmarts conventional banks

Having entered 2013, while the conventional banks are seen grappling against the industry headwinds, the largest Islamic bank of the country, Meezan Bank Limited is making greater strides.
The rate cut of 250 basis points since 2012 which is irking the entire banking sector seems not to hurt MEBLs top line witnessing impressive growth in the first quarter of the ongoing year. In line with the industry trend, the top line growth largely comes on the heels of return on investment in government Sukuk.
During 1QCY13, a remarkable boost in MEBLs investments-to-deposit ratio (IDR) speaks volume of its growing inclination towards risk-free government lending. The bank also continued to play its role as a market maker of Ijarah Sukuk.
Financing (advance) also grew substantially during the period but proportionally they are just 36 percent of the banks total deposits (see ADR). Murabaha and diminishing musharakah constitute the largest portion of total financing by the bank.
The increasing popularity of Islamic banking industry in Pakistan is quite evident from a staggering 34 percent year-on-year growth in MEBLs deposits in 1QCY13.
Quite amazingly, the growth in deposits is mainly attributable to low cost deposits which grew by 40 percent year-on-year in 1QCY13, hence an improved CASA ratio.
High deposits growth coupled with increased borrowings (interbank and SBP borrowing) took its toll on the markup expenses, trimming the gross spread ratio of MEBL.
The toxic assets (NPLs) of MEBL grew by five percent year-on-year, however, fresh financing during 1QCY13 kept a check on the infection ratio. The bank maintains a general provision in addition to the requirements of prudential regulations - thus enjoying quite impressive coverage ratio.
During 1QCY13, the recoveries of some of the NPLs enabled bank to reverse the provisioning expense, thus strengthening the bottom line.
Henceforth, with a plan to open 41 more branches along with branchless banking in 2013, the premium Islamic bank is set to pose tough competition to its conventional counterparts. That said, with many conventional banks swiftly tapping the Islamic banking market, MEBL needs to be more vigilant to maintain its market share.

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MEBL - Key ratios

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Indicators             1QCY13      1QCY12

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Infection Ratio            6%          8%

Coverage Ratio           118%        120%

Spread Ratio              48%         50%

Capital Ratio              6%          7%

IDR                       73%         63%

ADR                       36%         35%

CASA                      66%         63%

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Meezan Bank Limited

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Rs (mn)                        1QCY13   1QCY12      Chg

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Return on financing,

investment, placements          5,572    5,002      11%

Expense on deposits

and other dues                  2,901    2,516      15%

Net spread earned               2,671    2,486       7%

Provisioning/(Reveral)           (23)      194

Net spread after provisions     2,694    2,292      18%

Other Income                      754      799      -6%

Operating Revenues              3,448    3,091      12%

Other Expenses                  1,960    1,743      12%

Profit/(Loss) Before Taxation   1,488    1,348      10%

Taxation                          506      445      14%

Profit/ (Loss) After Taxation     982      903       9%

EPS (Rs.)                        0.98     0.90

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