Press Release

JCR Reaffirms Ratings of FINCA Microfinance Bank Limited

Karachi, April 23, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of FINCA Microfinance Bank Limited (FINCA MFB) at ‘A/A-1’ (Single A /A-One). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on October 31, 2017.

The assigned ratings of FINCA MFB incorporate association of the bank with FINCA International Inc., a global microfinance organization operating through 20 subsidiaries, including Pakistan. FINCA MFB continues to receive support from its parent through transfer of technical expertise emanating from FINCA’s global experience. The ratings also take into account sizeable loan book, slightly deteriorated though adequate asset quality and improved profitability of the bank.

By end-FY17, microcredit portfolio of the bank witnessed considerable growth. Individual lending continues to remain forte of the bank, while average loan ticket size has also increased on a timeline basis. The bank’s loan book reflects an adequate diversification of agricultural, livestock and enterprise loans and among Equal Monthly Installment (EMI) and Bullet repayment structures. During FY17, asset quality indicators deteriorated as a result of which the management has embarked upon various risk mitigation initiatives; impact of the same will be tracked over time.

During FY17, profitability of the bank enhanced primarily due to sizeable increase in the microcredit portfolio, however Operating Self Sufficiency (OSS) stood lower on account of higher administrative expenses. Liquidity indicators improved with higher liquid asset as a proportion of deposit and borrowings. Some improvement in deposit concentration has also been witnessed, though further granularity in deposit base is required to mitigate the impact of large withdrawals; till the time such granularity is achieved, the bank may need to maintain a larger liquidity cushion on the balance sheet.

Tier-1 equity of the bank augmented on account of profit retention, however as a result of expansion in the microcredit portfolio, Capital Adequacy Ratio (CAR) decreased to 18.5% (FY16: 20.6%) by end-FY17. Going forward, FINCA MFB has embarked upon various IT initiatives which are expected to bring operational efficiencies, going forward.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.

Javed Callea

Applicable Rating Criteria: Micro Finance Banks (May, 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited JCR-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.JCR-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.JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.JCR-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 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited