Press Release

JCR-VIS Upgrades Ratings of U Microfinance Bank Limited

Karachi, April 27, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded the entity ratings of U Microfinance Bank Limited (UMBL) from ‘A-/A-2’ (Single A Minus/A-Two) to ‘A/A-2 (Single A/A-Two). Rating of the bank’s privately placed unsecured, subordinated, Tier 2 TFC has been finalized and upgraded to ‘A-’ (Single A Minus) from BBB+ (Triple B Plus). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on September 29, 2017.

The rating action incorporates strengthening in financial profile of UMBL as reflected by improving capitalization and profitability indicators while asset quality indicators have largely been maintained despite significant growth in loan book. Ratings also reflect UMBL’s association with a strong sponsor, Pakistan Telecommunication Company Limited (PTCL). PTCL is co-owned by the Government of Pakistan and Etisalat International Pakistan (LLC) (Etisalat). Going forward, ratings are dependent on achievement of projected growth plans while maintaining asset quality indicators, improving deposit profile and retaining buffer over regulatory capital requirement.

After significant increase in financing portfolio during 2016, UMBL continued strong growth momentum in 2017 and in the ongoing year. Increase in loan portfolio is a function of improved productivity indicators and expansion in branch network. UMBL targets to open 41 branches in the ongoing year which will allow the Bank to achieve geographical diversification. Livestock/crop loan remains the forte of UMBL with the Bank diversifying in microenterprise and related loans.

With equity injection of Rs. 1billion in the ongoing year, capital adequacy ratio has depicted a noticeable jump. Growing profitability levels, as has been witnessed in 2017 and 1QCY18, is projected to support growth plans of the Bank. Funding strategy of UMBL entails a mix of deposits and borrowings to finance growth in the bank’s operations. Improvement in deposit profile (including depositor concentration and cost of deposit) remains a key focus area of the management. In this regard, a separate liability management function has been set up in order to improve deposit profile. Maintenance of adequate liquidity buffer is considered important till granularity in deposit base is achieved.

On the Branchless Banking (BB) front, deployment of biometric verification machines was undertaken to comply with regulatory requirement and to implement mobile accounts based strategy which will allow the bank to fully leverage on the BB license and Ufone’s retail channel. The bank is also integrating its lending business on the BB platform. Efficiency of control environment implemented in BB would be important in growth of BB.

For further information on this rating announcement, please contact the undersigned (Ext: 501) or Mr. Javed Callea (Ext: 508) at 021-35311861-70 (10 lines) or fax to 021-35311873.

Javed Callea

Applicable Rating Criteria: Microfinance Institutions (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited VIS 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.VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2018 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited