Ibbl Midaraba Bond Final Report 20.08.06

CREDIT RATING REPORT

ON MUDARABA PERPETUAL BOND (MPB) ISLAMI BANK BANGLADESH LIMITED

REPORT: RR/82/06

Analysts: Md. Nazrul Husain Md. Lutful Kabir CRISL, Bangladesh Ms.Sabeen Salem JCR-VIS, Pakistan Ayub Meor, RAM, Malaysia

MPB RATING: A+ (Indicative)

This is a credit rating report as per the provisions of the Credit Rating Companies Rules 1996. CRISL’s longterm rating is valid for only one year. After the above period this rating will not carry any validity unless the bank goes for rating surveillance on voluntary basis. Since IBBL has not entered into any surveillance agreement with us for this issue rating, which is not mandatory as per rules, the ratings will carry the validity for only one year

Rating Type

Rating Symbol

ISSUE RATING: (IBBL Tk 3000 Million Mudaraba Perpetual Bond) Date of Rating:

th

The 20

A+ (Indicative)

August, 2006

ISSUER RATING HISTORY Date of Rating: August 20, 2006

Date of Rating August 16, 2005 July 20, 2004 April 16, 2003 1.

MUDARABA PERPITUAL BOND (MPB) of IBBL

Issuer Incorporated: March 13, 1983

Board Chairman:

Mr.Kazi Harun-ar-Rashed

Executive President: Mr. Abdur Raquib

Investment Corporation of Bangladesh (ICB)

Issue Manager:

ICB Capital Management Limited.

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RATIONALE

FEATURES OF MPB

Islami Bank Bangladesh Ltd. is going to raise fund of TK. 3000 million by issuing Mudaraba Perpetual Bond (MPB) under the Mudaraba Principles of Islamic Shari‘ah. The Bond will be of perpetual nature and will not be redeemed at any point of time. However, the MPB will be listed with Stock Exchanges and traded in the Stock Market. The investors will get the share of profit derived from overall investment activities of the Bank at certain ratio, presently not less than 65% of Investment Income earned through deployment of Mudaraba Fund after due consideration to the management and operational expenses. In addition to the profit, the Bondholders will also be entitled to get additional profit equivalent to 10% of the rate of dividend declared to the shareholders in the respective years. The above bonds are subordinated to the depositors but remain high compared to the shareholders in respect of repayment of dividend and principle. ‡ 3.

MPB floated to overcome Capital Adequacy by IBBL

Short Term ST-1 ST-2 ST-2

CRISL assigns A+ rating to IBBL Tk. 3000 Million Modaraba Perpetual Bond (MPB). The above rating has been done on the basis of the strong fundamentals of the Islami Bank Bangladesh Limited (IBBL) such as stable profitability, dividend payment history, maintenance of growth rate, the projected profitability, Bond Structure including profit distribution system and overall prudent investment policy of the bank. However the factors are moderated to some extent by the fact that unlike normal bonds the MPBs will not carry any guaranteed profit as the Bonds are on Modaraba principles where the participants also share the risk of profitability. The security of the MPBs will be limited to only the asset pool being created out of the funds without any additional credit enhancement by the IBBL. The securities rated under this category are adjudged to be of good investment quality and offer adequate safety for timely repayment of financial obligations. Protection factors are considered variable and more susceptible to changes in the circumstances than the securities in higher rated categories. CRISL's indicative rating means that the rating is based on certain specific assumptions on fulfillment of which, final rating will be issued. The assumptions are finalization and signing of Trust Deed with ICB, approval of SEC for public floatation and listing with the Stock Exchanges. ‡ 2.

Trustee:

Long Term AAA+ A+

PURPOSE OF MPB

As per the existing requirement of Bangladesh Bank, all commercial banks are required to maintain capital adequacy @ 9% of the risk weighted assets of the bank (previously 8%). While calculating risk weight all private sector financing are required to face 100% risk weight as per BB rules. With the government policy of encouraging the private sector to be the engine of economic growth, the private sector need for finance has increased significantly from the banking sector during the last two decades. The IBBL being the largest private sector commercial bank has been providing both long term and short-term funds to the private sector. The bank is required to keep capital @ 9% for private sector financing. Therefore, the IBBL had to always keep in mind the maintenance of capital adequacy requirement of BB and had to go for right offers and bonus shares for several times to raise paid up capital. With the above right offers and bonus shares the paid up capital of the bank has gone upto Tk. 2764.80 Million in order to maintain the capital adequacy ratio.

CREDIT RATING REPORT

ON MUDARABA PERPETUAL BOND (MPB) ISLAMI BANK BANGLADESH LIMITED

MPB is treated as Tier-II capital

As on 31st December 2005, the banks Tier –1 Capital stood at 7.13% and Tier –II capital stood at 2.31%. Since the raising of Tier –1 Capital has impact on share value dilution and dividend paying capacity of the bank, the IBBL has been looking for alternate sources of Tier-II capital as a subordinated investment instrument and identified the issuance of Mudaraba Perpetual Bond to resolve the issue of capital adequacy. The issuance of MPB as Supplementary Capital (Tier-2 Capital) for Taka 3,000 million has been approved by the Bangladesh Bank under certain terms and conditions which inter alia include: ; ; ; ; ; ;

MPB must carry at least A rating

; 4.

The MPB will be considered for Tier-2 capital up to the maximum of 30% of the Tier –1 Capital All MPBs are to be fully paid up The MPBs must carry minimum credit rating of A The MPBs are to be listed with the Bourses of the country for trading The Bond holders will not be entitled to any loan facility against the bonds Prior approval for issuing Bonds must be taken from the Securities and Exchange Commission The value of the MPB should be fully paid up; the tax on the profit of the Bond should be determined in accordance with the principles of NBR etc. ‡

MPB ISSUER – ISLAMI BANK BANGLADESH LIMITED

Islami Bank Bangladesh Limited hereinafter called IBBL is the Issuer of the Mudaraba Perpetual Bond. The IBBL was established on March 13, 1983 as a public limited company under Companies Act, 1913 as amended in 1994. The bank started commercial operation on March 30, 1983 under the ambit of Banking Company Ordinance 1962 later on the Banking Companies Act, 1991 as the first interest free Shari‘ah based commercial bank with a mission to establish Islamic Banking through the introduction of a welfare oriented banking system. The bank is enlisted with Dhaka Stock Exchange and Chittagong Stock Exchange. IBBL has been declared as one of the 20 Blue Chip companies by DSE and as one of the 30 best companies by CSE. The bank provides a wide range of Islamic banking services. The major portion of investment portfolio of IBBL is towards corporate while the rest is towards SME, Specialized Schemes and retail investments. The bank carries out its business activities through 169 branches with the total staff strength of 6,539 as on April 30, 2006. The IBBL is holding a diverse shareholding pattern with foreign and domestic sponsor shareholders. The foreign investors hold 57.88% of total shares while the local investors hold the rest 42.12%. The bank holds the highest market share of deposits and investments among Private Commercial Banks (PCBs). It holds 6.03% of the share of market deposits and 7.10 % of the market investments as on 31st December 2005. The growth rate of IBBL is higher than the overall market growth. The Board of IBBL consists of 13 Directors. The Board conducted 19 meetings during the year 2005. The areas of Board's concentration are reviewing the ongoing activities and business strategies and giving general guidelines to the management. In order to perform the business more effectively, the Board has formed Executive Committee (EC) and Audit Committee. The Board approves all the decisions taken in the Executive Committee and Audit Committee, appraises the operational results, provides overall guidance to the management and decides about the remuneration of the Executive President. IBBL is a first-generation private sector bank in the country and is one of the best performing banks of the nation. The management has been taking utmost care of maintaining capital adequacy and liquidity management as per the requirement of Bangladesh Bank and maintain excellent growth with strategic plan to expand branch network, deposit and investment, develop new products and saving schemes. The bank has been operating profitably since the beginning of its journey keeping the internal capital generation high, following very cautious lending policy to keep the quality of asset strong. ‡

Issuer holds Long TermAA- & ST-2 ratings in 2005

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4.1 IBBL’s Credit Rating IBBL has been rated by CRISL first in April 2003 and assigned A+ rating in the long run and ST-2 rating in the short run. The bank is under the yearly surveillance of CRISL. The bank was upgraded to AA- in the long run and ST-1 in the short run in August 2005. The above was on the basis of the Banks' strong fundamentals, superior asset quality among the peers, good profitability, growth rate, required capital adequacy and solid funding base and liquidity. Financial Institutions rated in this category are adjudged to offer adequate safety for timely repayment of financial obligations. This level of rating indicates a corporate entity with an adequate credit profile. ‡

CREDIT RATING REPORT

ON MUDARABA PERPETUAL BOND (MPB) ISLAMI BANK BANGLADESH LIMITED

Bangladesh Bond market is at nascent stage

5.

BOND MARKET IN BANGLADESH

A Bond is a long-term instrument issued by a corporation or government to raise money from public for variety of purposes. The issuer in return will pay the Bondholders at a fixed rate of interest during the life of the bond and the Bondholders receive full face value of the bond when it matures. The Bangladesh Bond Market is at nascent stage. One of the main functions of a bond market is to provide long-term finance by creating alternative sources of finance through capital market. The main purpose of bond market is to provide stable source of income to the investors against volatile equity market. The Bangladesh capital market is yet to develop required ground to create the environment for a congenial bond market. The high rate of interest in the market and government saving instruments, soft infrastructure for bond market, unrestricted bank finance etc all are still congenial for a sound bond market. In addition, the investors are more interested in short term gains instead of waiting for higher return. The above scenario together with the attitude of the Islamic minded investors against interest income (which is declared prohibited as per Islamic shari‘ah principles) are responsible for non development of Bond market in the country. A number of listed companies issued some debentures (interest range from 12% to 15%) and listed them with Stock Exchanges but those debentures could not draw the attention of the investors. Some of those debentures also failed to pay the installments. In recent days some of the financial institutions issued Zero Coupon Bonds with attractive tax incentives. Some of the multilateral agencies operating in Bangladesh are ready to offer technical and financial assistance to promote Bond Market in the country. The Bangladesh Bank and the Securities and Exchange Commission with the support of the Ministry of Finance have been exploring the feasibility and modus operandi to explore the issue for the interest of the capital market. ‡

Islamic financial instruments are becoming attractive in the world

5.1 World Islamic Bond Market Islamic finance is increasing significantly since the mid 1970 and has made its presence both in the Islamic and western world. There is a strong demand for Islamic financial system, which enables Muslims to make use of their resources in a manner consistent with their beliefs. Islamic Financial Institutions are refraining from lending and borrowing on the basis of interest. Other modes of financing, permitted by Shari‘ah are in greater use. They invest clients’ money in stock or use this to earn profit through Islamic mode of finance. For example, the banking and financial institutions in Pakistan have introduced Participation Term Certificates (PTC). The PTC is transferable and based on profit and loss sharing. In Iran, a bond named ‘Participatory Bonds’ issued on Islamic principles for financing the project of reconstruction of highways. Sudan has introduced ‘Central Bank Musharaka Certificates’ and equity based instruments and now considering introducing Government Mudaraba Certificates (GMC), which enables the Government to raise fund through the issuing of the securities on the profit sharing basis. Bangladesh is a Muslim dominated country having strong Islamic faith on shari’ah based earning. But there is a dearth of shari’ah based securities in the capital market. The banks and financial institutions operating under shari‘ah based principles some times face surplus liquidity problem in view of the above. A significant number of Bangladeshis working abroad specially in Middle East countries having strong belief in shari‘ah based income finds it difficult to invest their hard earned income due to the absence of shari‘ah compliant securities and they have less alternative to purchase and invest in land as the only avenue. Under the above backdrop it is believed that the Bangladesh has enough potential for shariah based Islamic securities. ‡ 6.

No fixed profit on MPB

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MPB STRUCTURE

Globally Bond is a debt instrument carrying certain declared percentage of interest. Considering advantage of bond being an instrument offering stable income source for the bondholders, many countries such as India, Malaysia, Pakistan have restructured bonds to bring under the Islamic principles of Sharia wherein the bonds will not offer interest at fixed rate which is Prohibited under shari‘ah principles rather making the return as a part of profit distribution to the bond holders, a partner to share profit or loss on the basis of Islamic shari‘ah but however, keeping the features of the bond as stable source of income. Taking the above into consideration, the IBBL has decided to go for Mudaraba Perpetual Bond to meet the capital adequacy need. At the first instance, the management of IBBL received the consent of the Shari‘ah Council of the bank for issuing MPB explaining the features of MPB and its modus operandi of determining profitability. The Shari‘ah Council approved the above MPB subject to the condition that the bondholders should be informed about the proportion of profit distribution with weightage before issuing MPB. The IBBL will invest the fund received from issuance of Bond as general investment of the Bank and it will be treated as a component of total Mudaraba Fund. MPB holders will share the income derived from total

CREDIT RATING REPORT

ON MUDARABA PERPETUAL BOND (MPB) ISLAMI BANK BANGLADESH LIMITED

MPB fund will be invested along with depositors’ fund

investment activities i.e. income from the use of funds along with other Mudaraba depositors. The MPB holders will get minimum 65% of the Investment income generated from the deployment of total Mudaraba fund with 1.25 weightage. The gross income generated from the investment will be distributed to the Bondholders as under: ‡ ‡ ‡

MPB carries 1.25 weightage in profit distribution

The balance amount of the income will be considered as Management Fee of the Bank. As the name applies the bond will be of perpetual in nature and will not be redeemed at any time. The Bank shall be entitled to make further issue of bonds to raise fund when it is required. ‡ 7.

MPB fund investment follows Mudaraba Principles

Minimum 65% of the income generated by deployment of MPB Fund. The MPB will carry 1.25 weightage. An additional amount equivalent to 10% of the rate of dividend declared and payable to the shareholders of IBBL each year.

SHARI‘AH COMPLIANCE FEATURES OF THE MPB

The MPB is a shari‘ah based product. The fund being collected on Mudaraba Principles through the MPBs will be deployed in business under shari‘ah principles. The IBBL Shari‘ah Board will look into the principles of Shari‘ah compliance from time to time along with other investments of the bank. The investment of the fund being collected against MPB will not be ring fenced and will be mixed up with the overall asset pool of IBBL. Since the entire banking operation of IBBL is based on shari‘ah compliance, the additional business created out of the MPB fund will also remain Shari‘ah compliant. However, the income against overdue charges are to be carefully separated from the normal income in order to keep the income absolutely shari‘ah compliant. The MPB will not carry any fixed profit percentage; rather the profit percentage will vary from time to time depending on the overall profitability of the asset pool of the bank. That means the investors of the MPB are exposed to certain amount of business risk which is an essential requirement income of the MPB holders being shari‘ah compliant. ‡ 8.

PLACEMENT STRATEGY

IBBL has been planning to raise half of the above fund through Pre-IPO placement to commercial banks, investment banks, financial institutions, insurance companies and individuals and the remaining 50% through IPO as per IPO Rules to the general investors. The MPB will be issued at par and the securities will be listed with both the Bourses of the country in order to facilitate transfer. The face value of the Bond will be TK. 1000 (Taka one thousand) each and minimum subscription will be Taka 5,000 or multiple of TK.5000 based on the requirement of the Bangladesh Bank and prior consent of the SEC will be needed after fulfilling all the conditions. The ICB Capital Management Limited, a subsidiary Company of ICB has been appointed as manager to the issue. ‡ 9. MPB will be a subordinated instrument

Unlike the interest based traditional Bond; MPB will be a subordinated instrument. As a Mudaraba instrument it will get priority over the shareholders in respect of getting profit and also refund of principal in case of liquidation of the bank. The Bondholders will however, stand subordinated to the Depositors in respect of the payment of both profit and refund of principal. The MPB will be listed with both the Bourses of the country and will remain freely transferable depending on the market demand. The Bondholders will not be entitled to enjoy any rights and privilege as enjoyed by the shareholders except statutory requirements. ‡ 10.

The MPB fund shall create floating charge on present and future assets to the extent of Tk. 3000 million

LEGAL STATUS OF THE BONDHOLDERS

TRUSTEE

The Investment Corporation of Bangladesh will be the Trustee of the MPB. ICB was the trustee of the debentures floated in the market. The ICB is the government owned organization working in the capital market for long but however not rated by any rating agency. The Trust Deed sets out the rights of the Bondholders and the responsibilities of the trustee. The Trust Deed is in the process of execution. The main features of the Trust Deed are as under: ‡ ‡

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‡

The proceeds of the proposed MPB shall be utilized for normal business operations. The Trustee will be entrusted with the critical responsibility of monitoring and ensuring that the interest and rights of the Bondholders are fully protected. The money collected from Bond issue shall be a floating charge on present and future assets of the company to the extent of TK.3000 million.

CREDIT RATING REPORT

ON MUDARABA PERPETUAL BOND (MPB) ISLAMI BANK BANGLADESH LIMITED

Trustee is responsible to safeguard the interest of the Bondholders

‡

‡

‡ ‡ ‡ ‡ ‡

11.

The Trustee shall not in any manner interfere with the management or affairs of the IBBL except to the extent they may consider necessary for the preservation of the charged assets or any part thereof. At the time before the security hereby constituted becomes enforceable, the Trustee may upon the application in writing by the company and at the expenses of company but only if in the opinion of the trustee the profit of the Bond Holders shall not be prejudiced, may do or concur doing all or any of the facts in regard to the charged assets. IBBL shall pay remuneration worth of Tk 1.5 Million per year to the Trustee; IBBL shall install and maintain a proper Accounting system and submit the Audited Accounts to the Trustee not later than six months after the end of the financial year; The Trustee shall take necessary action if the Trust Fund is not operated as per Laws or Rules and Regulations and also inform the same to the Commission; IBBL shall inform the Trustee without any delay if any unforeseen event may substantially influence the business and financial position of the company; Anytime before the security hereby constituted becomes enforceable and if in the opinion of the Trustee, the interest of the Bondholders shall not be prejudiced, and may sell, call in, collect or convert or concur in selling, calling in, collecting or converting all or any of the charged assets on such terms as may seem expedient with full power to make any such sale for fulfilling any obligations due to the Bondholder(s).

PROFITABILITY AND RETURN ON MPB

IBBL has been operating profitably from its inception. The Bank will invest the fund collected through the sale of MPB under Modaraba principle which is based on profit or loss sharing with the depositors. In order to have an assessment of future profitability of the MPBs, CRISL has reviewed the profitability of various existing products of IBBL and the overall profitability of IBBL for the last five years as follows:

Return on Average Shareholders’ Equity in % Profit on Average Earning Investment in % Profit on Mudaraba Savings Bond (8 Yrs) in % Yield Per Share in % Yield on MPB (Estimated)*

2005

2004

2003

2002

2001

19.54 11.40 10.39 4.48 12.89

21.60 12.29 8.81 3.91 10.81

11.38 13.45 10.04 4.40 12.04

24.13 13.13 10.79 6.32 13.29

15.68 15.07 12.01 7.80 14.51

(*Yield has been estimated on historical figures under proposed MPB structure.) It appears from the above comparison that the yield per MPB (12.71% in five years average) is quite higher than the yield per share of IBBL (5.38% in five years average). The above suggests that the MPBs are more return bearing than the IBBL shares. ‡ 12.

Gross NPL of IBBL stood at 3.25% in 2005

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RISK ANALYSIS:

12.1 Investment Risk Bangladesh is an investment friendly country. Even with the presence of confrontational politics, the economic growth rate is significant. With the encouragement of the government policies to private sector growth, experience of garments with full backward and forward linkage, opening up of the telecommunication, transport, power generation and distribution all put together placed Bangladesh in a solid foundation and expected to continue its growth over 5% to 6% in the coming years. The IBBL has been financing the private sector very successfully. The total investment size of the bank was Tk 93.64 billion as on 31st December 2005 with a gross NPL of only 3.25% and net NPL ratio was 0.71% in 2005 which is considered to be very good. Subsequently the NPL coverage was 116.65% in 2005 with average coverage was 97.22% during last five years. The bank has been maintaining a growth rate of 27.71% over the last few years in average with the 23.44 % growth rate in 2005. CRISL has observed that although there is a provision for 15% Loss Offsetting Reserve Provision in the Bond indenture, there was no instance of the utilization of such fund in IBBL financing. ‡ 12.2 Operation Risk The IBBL addresses all the investment risk through investment policy guidelines. For ensuring the proper risk management, its organizational structure is yet to be updated with the BB’s guidelines. IBBL, however, follows structured investment policy and discretionary limit at different levels while

CREDIT RATING REPORT

ON MUDARABA PERPETUAL BOND (MPB) ISLAMI BANK BANGLADESH LIMITED

receiving, processing and sanctioning of investment proposals. Although the liquidity position of the bank at present is tight the bank is appeared to be aggressive in sanctioning loans compared to deposits, which is not in line with Bangladesh bank guidelines. Operational risk may arise from error and fraud due to lack of internal control and compliance. For ensuring the effective Internal Control and Compliance its organizational structure, reporting line and management systems are not in line with guidelines of BB. However, management of the bank controls operational procedure through Internal Control and Compliance Division. The MIS, an essential management tool to control operational risk is still at infant stage and not in line with the banks development in other operational areas. ‡

Volatile interest rate exerts significant impact on investment

Less exposure in equity investment

12.3 Market Risk The main market risk for a banking company consisted of Investment rate risk, Commodity Risk, Equity investment Risk and Foreign Exchange Risk. The sector has been facing a volatile interest rate risk which is on upward trend. With the above upward trend of interest rate the banks are making economic profit loss and accordingly trying to cover the same through adjustment. The IBBL being an established bank and pioneer in Islamic banking has been adjusting the profit rate on its client in order to adjust the economic losses. However the above volatility has a significant impact on the operation of all banks and financial institutions at present. The IBBL does not have significant investment in the equity of listed companies and therefore is not exposed to substantial equity risk. However since the bank is involved in private sector financing and investment in business dealing with commodity exchanges, it has commodity risk to some extent IBBL’s Foreign Exchange Risk Management is conducted through ‘Foreign Exchange Treasury Manual’, which needs to be improved. IBBL has developed different strategies of handling foreign currency risk and sets different limits. ‡ 13.

LIQUIDITY

The IBBL has the track record of having surplus liquidity all times in view of non- availability of Islami shari‘ah based products in the market. In addition it has the hinterland of small savings resulting in continuous flow of fund as deposits. The IBBL, with its current level of cost of funds, will enjoy a better financial flexibility at the time of increasing lending rate scenario comparing to other players in industry where some bears around 11% cost of fund. ‡ 14. Capital Adequacy, 9.44%

Issuance of MPB will increase the CAR upto 11.19%

IBBL has been maintaining capital adequacy ratio as set by Bangladesh Bank. But due to gradual increase of risk-weighted assets through private sector financing, the capital coverage of the bank has been decreasing despite issuing right shares and bonus shares in the past few years several times. The present capital adequacy ratio is marginally above 9%. As part of its process, the bank is going to raise fund worth TK. 3,000 million through issuing MPB which will be treated as supplementary capital up to 30% of the core capital (Tier – I). Therefore, after issuing the MPB the present capital adequacy will increase to 11.19% from 9.44% as based on the financials as on December 2005. Subsequently this MPB fund will be adjusted with supplementary capital as according to its core capital in future. ‡ 15.

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IMPACT ON CAPITAL ADEQUACY OF IBBL

SWOT ANALYSIS

Strength „ Issuer is AA- rated bank having strong fundamentals „ Profitability of Bond is higher than the equity Securities „ Un-restricted Transferability „ Shariah Compliant „ Projected to yield stable income „ Beneficial for the Issuer to have comfortable Tier-II Capital Opportunities „ Strong growth potential „ Scope for furtherance of fund

Weakness „ No fixed percentage of profit „ Holders are also exposed to „ business risk „ No Credit Enhancement „ No separate asset pool for MPB

Threats „ Volatile money/ capital market „

Unstable macro economic situation

CREDIT RATING REPORT

ON MUDARABA PERPETUAL BOND (MPB) ISLAMI BANK BANGLADESH LIMITED

16.

CONCLUSION

The MPB being floated by IBBL has the potential of capturing the attention of the Islamic community. At present due to non-availability of shari’ah based securities, the financial institutions operating on shari‘ah principles, having surplus fund are facing liquidity surplus which will be resolved to some extent with the floatation of the above Bonds. In addition to the above, a large number of Bangladeshis working in Middle East Muslim countries may find the MBPs as a saving instrument to keep their hard earned fund in Shari‘ah based securities. Islami Bank Bangladesh limited is the first generation private sector established bank and leader in Islami shari‘ah based banking. The issuance of MPB is also a pioneering step. The IBBL has the track record of earning stable profit and paying regular dividend. The bank has significant foreign shareholders who look after the management of the Bank too. Under the above backdrop CRISL believes that the fund flow being raised out of MPB will be invested with same prudence and will carry the same rate of profit like other investments and ultimately the IBBL will be able to meet its commitments. ‡

END OF THE REPORT

Information used herein is obtained from sources believed to be accurate and reliable. However, CRISL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Rating is an opinion on credit quality only and is not a recommendation to buy or sell any securities. All rights of this report are reserved by CRISL. Contents may be used by news media and researchers with due acknowledgement

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CREDIT RATING REPORT

ON MUDARABA PERPETUAL BOND (MPB) ISLAMI BANK BANGLADESH LIMITED

CRISL RATING SCALES AND DEFINITIONS LONG-TERM RATING OF DEBT INSTRUMENTS RATING AAA Triple A (Highest Safety) AA+, AA, AA(Double A) (High Safety) A+, A, ASingle A (Adequate Safety) BBB+, BBB, BBBTriple B (Moderate Safety) BB+, BB, BBDouble B (Inadequate Safety)

B+, B, BSingle B (High Risk)

C

(Very High Risk) D (Default)

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DEFINITION Investment Grade Securities rated in this category are adjudged to be of highest credit quality. This level of rating indicates highest level of safety for timely payment of interest and principal. Risk factors are negligible and nearest to risk free government securities. Securities rated in this category are adjudged to be of high credit quality and offer higher safety. This level of rating indicates a security with sound credit profile and without significant problems. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Securities rated in this category are adjudged to be of good credit quality and offer adequate safety for timely repayment of financial obligations. Protection factors are considered variable and more susceptible to changes in circumstances than securities in higher-rated categories. Securities rated in this category are adjudged to offer moderate safety for timely repayment of financial obligations. This level of rating indicates deficiencies in certain protective elements but still considered sufficient for prudent investment. Risk factors are more variable in periods of economic stress than those rated in the higher categories. Speculative Grade Securities rated in this category are considered to be of speculative grade but deemed likely to meet obligations when due. Present or prospective financial protection factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently within this category. Securities rated in this category are considered to be of highly speculative grade. This level of rating indicates high risk associated with timely repayment of interest and principal. Financial protection factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes. Potential exists for frequent changes in the rating within this category or into a higher or lower rating grade. Securities rated in this category are considered to be very speculative with high risk of default. Protection factors are scarce. Timely repayment of interest and principal possible only if favorable circumstances continues. Default Grade Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments.