Press Release

Ratings of U Microfinance Bank Limited

Karachi, January 11, 2019: JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded the short-term entity ratings of U Microfinance Bank Limited (UMBL) from ‘A-2’ (A-Two) to ‘A-1’ (A-One). Long-term entity rating and subordinated Tier 2 TFC rating has been reaffirmed at A (Single A) and ‘A-’ (Single A Minus), respectively. Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on April 27, 2018.

The rating action incorporates improvement in funding profile and liquidity buffer of the Bank post injection of Rs. 4b Tier 2 capital by the sponsor, Pakistan Telecommunication Company Limited (PTCL). Ratings also reflect strong sponsor profile and demonstrated support of PTCL. PTCL has been assigned an entity rating of AAA/A-1+ (Triple A/A-One Plus) and is co-owned by the Government of Pakistan and Etisalat International Pakistan (LLC) (Etisalat). Improvement in financial profile of UMBL has continued on a timeline basis and is a key rating driver. Going forward, ratings are dependent on achievement of projected growth plans while improving asset quality indicators, strengthening deposit profile and retaining buffer over regulatory capital requirement.

Over the last three years, advances portfolio has depicted strong growth with the same increasing from Rs. 913m at end-2015 to Rs. 17.4b at end-Dec’2018. Increase in loan portfolio is a function of improved productivity indicators and expansion in branch network. UMBL targets to open 60 branches in the ongoing year which will allow the Bank to achieve further geographical diversification. Livestock/crop loan remains the forte of UMBL with the Bank diversifying in microenterprise and related loans. Infection in the financing portfolio has increased on a timeline basis but continues to remain within manageable levels despite significant growth in financing portfolio.

Profit before tax has grown at a CAGR of 201% over the last three years on the back of increase in financing portfolio. Growing profitability levels, as has been witnessed in 2017 and 2018 along with incremental benefit of Tier 2 capital 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. Maintenance of adequate liquidity buffer is considered important till granularity in deposit base is achieved.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Mr. Jamal Abbas Zaidi (Ext: 207) 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 2019 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