Press Release

JCR-VIS Upgrades Long Term Entity Rating of U Microfinance Bank Limited to A-

Karachi, April 30, 2014: JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded the medium to long-term entity rating of U Microfinance Bank Limited (UMBL) (formerly Rozgar Microfinance Bank Limited) from ‘BBB+’ (Triple B Plus) to ‘A-’ (Single A Minus). Short-term rating of UMBL has been maintained at ‘A-2’ (A-Two). Outlook on the assigned rating has been revised from ‘Positive’ to ‘Stable’.

Microfinance sector offers significant potential for growth in Pakistan with market penetration at 10.6% of an estimated 27 million borrowers. Microfinance banks posted healthy growth in 2013 with delinquency levels remaining below 1%. Entry of new players in microfinance and Branchless Banking (BB) has resulted in increased competition. Differentiation in product offering and customer services may allow industry participants to distinctly position themselves over time.

The ratings assigned to UMBL incorporate implicit support of the bank’s sponsor, Pakistan Telecommunication Company Limited (PTCL) - the largest telecom company in Pakistan - having 100% shareholding in the bank. PTCL is backed by the Government of Pakistan and Etisalat International Pakistan (LLC) (Etisalat). Etisalat is a state owned telecom corporation of UAE, having a long-term rating in ‘AA’ category by an international rating agency.

UMBL launched commercial operations of BB services at national scale in 3Q13. Lending activities remained limited in FY13 though having picked pace subsequent to year-end. Lending activities are projected to increase at a moderate pace in the coming years. Over the long term, the bank’s focus will remain primarily on pursuing growth in volumes of BB services. In order to achieve scale, UMBL is pursuing strategic alliances with different entities. The bank has also entered into facilitation agreement with few utility companies.

With a limited loan portfolio at end-FY13, assets were mostly parked in money market operations. Liquidity levels are projected to remain high over the rating horizon. High level of CAR currently provides cushion to absorb infrastructure expansion costs.

Currently, the bank’s profitability is primarily driven by income from non-core operations. While income from BB operations is presently nominal, the proportion of same is projected to increase in line with the bank’s business model. Ability to meet projections depends on realization of targeted BB volumes and translation of planned alliances into business generation.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA, at 021-35311861-70 or Mr. Maimoon Rasheed at 042-36610681-84.

Faheem Ahmad
President & CEO

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 2014 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