JCR-VIS Credit Rating Co Ltd (JCR-VIS) has upgraded the entity ratings of Dawood Islamic Bank Limited (DIBL) from 'BBB+/A-3' (Triple B Plus/ A-Three) to 'A-/A-2' (A Minus/A-Two) with a Stable Outlook. The shareholding pattern of DIBL is expected to undergo change, following the Rs 1.8b rights issued planned by June 30, 2011, with Unicorn Investment Bank (UIB) and Islamic Corporation for Development of the Private Sector (ICD) to emerge as the two major shareholders.
With the reconstitution of the Board and change at the executive management level during FY10, the bank will be able to pursue its business strategy in a more focused manner. Whereas current minimum capital requirement (MCR) for banks is Rs 7b, DIBL has been granted an exemption from the State Bank of Pakistan till June 2011 for increasing its paid up capital to Rs 6b as planned. MCR will continue to increase in a phased manner and is projected to be met by further capital infusions and improvements in operating performance in the coming years.
Capital remains more than adequate in terms of business volumes of the bank. Over the last year, the bank has focused on improving its deposit mix, also reflected in rationalisation of cost of funds during FY10. Placements from financial institutions have largely been shed off and current and saving accounts now comprise a larger proportion of the deposit base.
Liquid reserves are adequate vis-à-vis financial obligations. While operational loss was higher in FY10 on account of full year impact of branches set up in late 2009 coming into effect in 2010, the bank is expected to post profit for the full year 2011, as also evidenced by a gradual improvements in revenues and margins since the second half of 2010. Contribution from non- funded business is currently very low but the bank is making efforts in this regard, through launch of wealth management products, as well as increased trade business.
The bank has made policy revisions with respect to underwriting guidelines. In FY10, exposures were selectively enhanced in the commodities sector. While portfolio quality had been compromised on account of disbursements made prior to FY10 resulting in a high infection rate, non-performing exposures are manageable in absolute terms.-PR
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