Takeaways from Meezan Bank analysts briefing.

Byline: Shabbir Kazmi

Meezan Bank is Pakistan's largest and full service Islamic bank, enjoying a market share of around 35 percent. Total assets of the bank are reported at Rs938 billion, while total deposits touch Rs785 billion. It enjoys an extensive outreach comprising of a network of 660 branches. Meezan Bank announced a dividend payout of 45% in 2018 (35% cash + 10% bonus issue) as compared to 30% last year. Following are the key takeaways from the latest analysts briefing.

Meezan Bank has significantly improved its capital base, where the Tier-I capital has improved to 12.09% compared to 9.94% in the same period last year. The CAR has improved to 14.55% at end December 2018 as compared to 12.89% reported at end December 2017.

The management feels comfortable at this CAR level and expected to manage capital requirements using fresh issue of Rs4 billion of Tier-II capital as well as rely on retained earnings while maintaining dividend payout. The capital issue is likely to be over by end of 3Q2019. The bankintends to maintain a CAR of 15% going forward.

As regards issue of Rs200 billion Sukuk for the resolution of circular debt, Meezan Bank informed that its share in the issue will be around Rs80-85 billion. The investment will yield KIBOR plus 80bps and the transaction is expected to be completed shortly. A point to be noted is that the proposed Sukuk will be SLR (statutory liquidity ratio) eligible. The management expects further issues of Sukuk for circular debt resolution, where as per the management the government is already in talks for a second tranche.

NPLs to Loan ratio has reduced to 1.3% in 2018 from 1.6% in the same period last year, while coverage ratio has increased to 139% as compared to 133% at end December 2017. The Bank has made Rs550 million general provisioning during 4Q2018, which has led to the increase in coverage ratio. The management informed that it was tracking loan portfolio and does not expect significant deterioration in it.

The management stated that there would be no material impact from adoption of IFRS-9. To note, Meezan Bank is amongst only two Pakistani banks to have a coverage ratio of more than 100%.

NIMs are expected to stabilize at around 5% level, given Bank's expectation of only a further 50-75bps hike in policy rate. As per management estimates, every 1% increase in policy rate leads to Rs1 billion increase in net profit.

Meezan Bank informed that it has not yet reversed the Workers Welfare...