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BankIslami Pakistan Limited (PSX: BIPL) was incorporate in Pakistan as a public limited company in 2004. The bank was founded by Jahangir Siddiqui & Company Limited and Randaree family. In 2005, Dubai bank also joined the team of sponsors to become one of the founding shareholders of BIPL. BIPL was granted license of “Scheduled Islamic Commercial Bank” in 2005. The bank is engaged in providing full suite of Shariah compliant solutions to its clients which includes corporate, commercial, consumer, retail and investment banking activities. As of December 31, 2022, the bank is operating with 380 branches including 80 sub-branches.

Pattern of Shareholding

As of December 31, 2022, BIPL has 1,108.703 million shares outstanding which are held by 20,060 shareholders. Associated companies, undertakings and related parties have the major stake of 53.17 percent in the company. Under this category, the major shareholders are Jahangir Siddiqui & Company Limited (21.26 percent) followed by Randaree Family (19.47 percent) and then by JS Bank Limited which currently holds 7.79 percent shares of BIPL. Directors, CEO, their spouse and minor children account for 19.84 percent of the total outstanding shares of BIPL. Local general public hold 10.75 percent shares followed by Modarba and Mutual funds holding 7.67 percent shares of BIPL. Insurance companies have a stake of 1.01 percent in the company. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

The asset base of BIPL has been showing staggering growth over the years growing from Rs.216.833 billion in 2018 to Rs.487.599 billion in 2022. While the asset growth came on the back of impressive escalation in both advances and investments portfolio, it is to be noted that the AD ratio of BIPL has been shrinking over the years while the ID ratio has been ticking up during the period under consideration. AD ratio which stood at 64 percent in 2018 shrank to 48 percent in 2022. Conversely, ID ratio which clocked in at 21 percent in 2018 jumped up to 43 percent in 2022. Despite riding the downward trajectory, the AD ratio still stands above the ID ratio which speaks volumes of the fact that BIPL is performing its core function of lending to the private sector instead of leisurely parking its funds in risk-free government securities.

BIPL maintains its AD ratio well above 40 percent in all the years under consideration. Majority of BIPL’s advances go into Running Musharakah facility. While economic slowdown and decline in the borrowing appetite of the private sector is to be blamed for the declining AD ratio of BIPL, another significant reason of adopting a cautious lending approach could be the year-on-year rise in non-performing loan portfolio of BIPL. BIPL’s NPLs almost doubled since 2018 to stand at an excess of Rs.14 billion in 2022. In 2022, the NPLs posted a steep rise of 28 percent year-on-year because of lackluster performance of private sector which is making them incapable of servicing their debt. However, the infection ratio of BIPL has significantly improved from 11.89 percent in 2018 to 9.02 percent in 2022. Among all the years under consideration, the highest infection ratio of 12.10 percent was recorded in 2020. Keeping in view the prevailing economic backdrop, BIPL is undertaking a cautious approach and has maintained additional general provision which pushed up its coverage ratio from 72.47 percent in 2018 to 96.14 percent in 2022. This is why the net provision registered a massive growth of over 118 times in 2022.

Deposit base of the company is also boasting prominent growth in all the years under consideration. It kicked off from Rs.184.430 billion in 2018 to surpass the strategic target and climb as high as Rs.415.91 billion in 2022. What is even more commendable is that the CASA ratio of BIPL conveniently stays above 58 percent in all the years under consideration, clocking in at 64 percent in 2022. While BIPL’s CASA dropped from 69 percent in 2018 to 64 percent in 2022, the share of current account deposits in the total deposit portfolio inclined to 38 percent in 2022 from 32 percent in 2018 while the share of saving account deposits slumped from 37 percent in 2018 to 26 percent in 2022. This shows that the bank immensely focused on mustering non-markup bearing current deposits over the years by introducing new and innovative products.It is to be noted that Islamic banks are also immune from minimum deposit rate policy on saving deposits; hence saving deposits are still attractive and less costly for Islamic banks unlike conventional banks where saving deposits are no longer lucrative because of excessive monetary tightening since 2022.

The net spread of the bank is also boasting tremendous growth in all the years under consideration with the exception of a 12 percent year-on-year slump in 2021 which came on the back of reduction in benchmark rate during the year. The topline is also ascending in all the years under consideration except in 2021. The highest growth in the net spread of BIPL was achieved in 2022 owing to an increase in average earning assets coupled with multiple rounds of monetary tightening during the year. The other income segment is largely led by fee and commission income which after experiencing a dip of 27 percent year-on-year in 2019 has been growing by leaps and bounds in all the years under consideration. Another star of the non-funded income segment is foreign exchange income which has been registering unabated growth in all the years under consideration with an exceptional 180 percent year-on-year growth in 2022 to stand at Rs.1.35 billion. Non-markup income to total income had been dropping until 2020 to reach 11.57 percent from 16.82 percent in 2018. However, it recovered thereafter to clock in at 15 percent in 2022. BIPL has considerably improved its cost-to-income ratio from 94.35 percent in 2018 to 49.83 percent in 2022. In 2022, the cost-to-income ratio showed significant improvement as it nosedived from 74.71 percent in 2021 to 49.83 percent in 2022. The net profit of BIPL has also been ticking up in all the years under consideration. The magnitude of year-on-year growth in net profit was lesser in 2020 and 2021 clocking in at 31 percent and 33 percent respectively due to monetary easing and slowdown of economic activity owing to COVID-19. However, in 2019 and 2022, the net profit grew by 247 percent and 128 percent respectively. The net profit grew from Rs.323.64 million in 2018 to Rs.4.48 billion in 2022. The EPS also posted a persistent growth to mount from Rs.0.3299 in 2018 to Rs.4.0446 in 2022.

Recent Performance (1QCY23)

During 1QCY23, the asset base of BIPL grew by 10 percent. Advances grew by 20 percent while investments posted a growth of 12 percent when compared to the year-end 2022. AD ratio which had been showing a declining trend since 2018 significantly improved to 58.59 percent as of March 2023 compared to 48.41 percent as of December 2022. IDR also jumped from 43.32 percent in December 2022 to 49 percent as of March 2023. Despite growth in advances portfolio, the infection ratio of BIPL improved to 8.01 percent as of March 2023 from 9.02 percent as of December 2022. The coverage ratio stood at 95.6 percent as of March 2023.

The deposit portfolio of the bank dipped by 1 percent compared to the year-end figure. Saving deposits posted a growth of 2 percent in 1QCY23, current deposits slid by 8 percent during the period. This took CASA slightly down to 62.4 percent as of March 2023. However, current account deposits still have a share of 36 percent in the overall deposit base of BIPL while saving deposits constitute 27 percent of the total deposits.

The net spread of BIPL posted a handsome 107 percent year-on-year growth which came on the back of right level of CASA, growth in low-risk advances portfolio as well as investment in GoP Sukuk. Record high discount rate also played its due role in keeping the margins robust. Non-funded income grew by 15 percent year-on-year in 1QCY23, however its share in the total income dropped from16.76 percent in 1QCY22 to 10.05 percent in 1QCY23. While foreign exchange income posted a 69 percent year-on-year growth, fee and commission income dwindled by 9 percent on the back of lesser investment banking fee and a drastic drop in commission on trade, remittances, bancatakaful and arrangement with financial institutions. Gain on securities also plunged by 86 percent year-on-year in 1QCY23. Cost-to-income ratio noticeably improved to 47.9 percent in 1QCY23 as compared to 66.67 percent during the same period last year.

The net profit registered an overwhelming year-on-year growth of 244 percent to clock in at Rs.1.794 billion in 1QCY23 despite higher taxation. EPS also grew from Rs.0.47 in 1QCY22 to Rs.1.6184 during the period under review.

Future Outlook

Given the bank continues to focus on its three pronged strategy of elevating its financing portfolio, focusing on low-cost deposit mix and investment in government securities, the net markup earnings will continue to stay strong. The bottomline will be further buttressed by tremendous growth in foreign exchange income. The bank has already increased its general provisioning to account for the increased provision requirement. Hence, IFRS-9 will not have any impact on the financials of BIPL. With JS bank intending to purchase over 51 percent shares and control of BIPL, what the future beholds for the bank which is being on the up and up is yet to be seen.


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