Lanka Rating Assigns Initial Entity Rating to Amana Bank PLC

The rating reflects Amana Bank (“AB” or “the Bank”) strong asset quality, strengthened capitalization and sustained growth and performance over the years when compared to other banks in its category. Amana Bank is licensed and operates as an Islamic bank in Sri Lanka, the only bank in this space. The Bank draws strength and strategic guidance from its financially sound corporate sponsors, Islamic Development Bank Group ("IsDB"), with around 28% shareholding. The Bank has relatively low ADR (~72%) but maintains robust asset quality with Non-Performing Loan (NPL) ratio of ~3.9% in 6MCY24, well below the sector average. The Bank primarily finances to Retail and SME sectors. The Bank pivoted to less-risky Corporate sector during CY22 and CY23 when the economic indicators were weak and SME sector was more vulnerable. However, the proportion of SME sector is expected to increase, going forward. The earning profile of the Bank is characterized by adequate margins after witnessing faster downward repricing of deposits coupled with having a higher Current Account Saving Account (CASA) ratio than the industry. The funding mix is granular in nature with a depositor base of over LKR~146bn, as the Bank successfully established its presence in highly competitive financial sector. The Capital Adequacy Ratio (CAR) and Tier-1 were recorded at 18.1% and 15.4%, respectively, in 6MCY24 implying adequate capital buffer after completion of recent rights issue. The Bank posted Profit After Tax (PAT) of LKR~763mn during 6MCY24 (6MCY23: LKR~420mn) and is expected to sustain its profitability. There remains a level of constraint in Bank’s earning potential arising due to the lack of sharia compliant securities.
The rating is dependent on the Bank's ability to sustain its asset quality, strong capitalization and profitability trend. Any adverse impact on capital and related regulatory ratios and/or deterioration in asset quality would have negative rating repercussions.

About the Entity
About the Entity Amana Bank (“AB” or “the Bank”) is a licensed commercial bank established under the Banking Act No. 30 of 1988. The Board has eleven directors, out of which, seven are Non Independent Directors and ten are Non-Executive Directors. The Chairman of the Bank is Mr. Ali Asghar Akbarally since July 2020. The management team is headed by the Chief Executive Officer/ Managing Director, Mr. M.T.M. Azmeer, who joined the Bank in 2012.