Press Release

VIS Upgrades Entity Ratings of U Microfinance Bank Limited

Karachi, April 29, 2021: VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of U Microfinance Bank Limited (UMBL) to ‘A+/A-1’ (Single A Plus/A-One) from ‘A/A-1’ (Single A /A-One). The medium to long-term rating of ‘A+’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. The subordinated Tier 2 TFC of Rs. 600m has also been upgraded to ‘A’ (Single A) from ‘A-’ (Single A Minus). The medium to long-term rating of ‘A’ denotes good credit quality, with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on April 30, 2020.

The assigned ratings to UMBL incorporate its strong sponsor, Pakistan Telecommunication Company Limited (PTCL) (assigned an entity rating of AAA/A-1+ (Triple A/A-One Plus) by VIS Credit Rating Company) which is co-owned by the Government of Pakistan and Etisalat International Pakistan (LLC) (Etisalat) (rated AA- by an international credit rating company). Management control of PTCL rests with Etisalat, a state owned Telecom Corporation of UAE. The implicit support from the sponsor was witnessed with the conversion of Tier-II Subordinated Debt amounting to Rs. 800.m into common equity in April’20 coupled with recent conversion of Rs.1.0b into preference shares to add further depth to capitalization indicators of the bank. The ratings reflect growth in business volumes, sound liquidity profile, strengthening of capitalization indicators and enhanced profitability metrics. The rating action takes into account the revised business strategy in times of unprecedented pandemic situation where increased focus was aimed at enhancing secured portfolio; almost half of UMBL’s micro-credit portfolio is gold-backed entailing lower credit risk than the largely unsecured portfolio of the peer group. The lending strategy has reflected positively on capital adequacy ratio of the bank which is reported as one of the highest amongst peers. The rating derives comfort from sizable subjective provisioning booked during the period under review to add a further cushion for absorption of loan losses, if occurring, going forward.

The ratings nevertheless incorporate the uncertainty involving financial risk profile of the bank as one-fourth of the performing portfolio is categorized under restructured in light of SBP’s relaxation on repayment terms for borrowers by giving a blanket extension of one year. However, UMBL’s comparative position is relatively safeguarded in line with higher share of collateralized portfolio coupled with lower proportion of rollover portfolio to performing advances as compared to peers. Stemming from the aforementioned event, portfolio quality indicators exhibited improvement during the outgoing year; however, the same is considered a one-off event and VIS expects the infection ratios to normalize by HY22 as the restructured portfolio would fall due and be collected in the interim period. Therefore, rating will remain sensitive to recovery of both amounts placed under deferred loan and accrued mark-up category. Going forward, maintenance of asset quality and liquidity indicators while continuing cautious business expansion would remain key rating drivers.In view of continued uncertainty and severity of impact of the pandemic on the economy in general and microfinance sector in particular, the outlook on the ratings will remain vulnerable.

For further information on this rating announcement, please contact Ms. Maham Qasim (042-25723411-13, Ext: 8010) or the undersigned at 021-35311861-70 or email at

Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Micro-Finance Banks (June 2019)

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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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