Press Release

JCR-VIS Reaffirms Entity Ratings of The First MicroFinanceBank Limited

Karachi, April 28, 2017: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of The First MicroFinanceBank Limited (FMFB) at ‘A+/A-1’ (Single A Plus/A-One). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on April 28, 2016.

The ratings of FMFB incorporate its association with Habib Bank Limited (HBL) - the largest commercial bank in Pakistan - along with Aga Khan Development Network and other international finance institutions. With an equity injection of Rs. 2b during 2016, HBL has acquired controlling interest in the bank while stake of other shareholders has been diluted. Resultantly, capitalization levels improved in terms of higher capital adequacy ratio.

Micro-credit lending portfolio exhibited considerable growth with livestock and agriculture representing largest share in loan book. With the management’s focus on higher ticket loans and gradual progression of clients to next loan cycle, average loan size of the bank stood higher. In order to add further variants to product suite, the bank has recently introduced financing product for students of higher education. The conventional distribution network of the bank is characterized by its pioneering presence in Gilgit Baltistan. Infection levels remained low in the outgoing year. Given the bank’s growth plans, asset quality indicators need to be maintained, going forward.

Deposits continue to represent primary source of funding; deposit base exhibited notable growth in 2016. The deposit mix witnessed favorable change with increasing proportion of current and saving accounts. However, concentration in deposits increased during the year; granularity in the depositor base is required in order to mitigate the concentration risk. Overall liquidity profile of the bank remained sound. Going forward, the bank intends to gradually increase advances to deposit ratio.

In line with higher proportion of CASA and lower benchmark rates, cost of the funds of the institution declined reflecting positively on spreads. Operating expenses increased considerably in 2016 mainly on account of one-off adjustment in salaries and benefits in line with market rates; Operating Self-Sufficiency remained stable on the back of considerable increase in core income. Resultantly, the bank was able to maintain its bottom line on a timeline basis.

The bank has recently introduced new Core Banking System (CBS) - Oracle Flexcube. The new CBS provides flexibility to the bank to cater to the growing needs of the sector. The department of Digital Financial Services and Financial Inclusion has been formed in 2016. While launching technology related products, the aim of the department is to make operations paperless by implementing digital banking.

With the inclusion of a new shareholder, several changes were witnessed at the board level. Notable positive changes were also witnessed at the senior management level. Stability in management is pivotal in effective implementation of the business strategy.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-71 or Mr. Maimoon Rasheed at 042-35723411 or fax to 021-35311873.

Javed Callea

Applicable Rating Criteria: Micro-Finance Banks (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 not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2017 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