Press Release

VIS Reaffirms Entity Ratings of Advans Pakistan Microfinance Bank Limited

Karachi, April 26, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Advans Pakistan Microfinance Bank Limited (APMBL) at ‘BBB+/A-3’ (Triple B Plus /A-Three). Outlook on the assigned rating is ‘Stable’. The long term rating of ‘BBB+’ signifies adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short term rating of ‘A-3’ indicates satisfactory liquidity and other protection factors qualify entities/issues as to investment grade. The previous rating action was announced on April 25, 2018.

The assigned ratings of APMBL draw comfort from sound profile and experience of both sponsors (Advans SA SICAR (Advans SA) and FMO (Dutch Development Bank) in the microfinance sector, as depicted by their presence in microfinance institutions in several countries. The major sponsor, Advans SA, has demonstrated both technical and financial support to APMBL in the past, and the same is expected to materialize during the ongoing year and in future. However, the bank continues to post operating losses since inception in 2012 due to high operating costs in relation to size of the portfolio, turnover in loan officers and limited market access to a single province. APMBL plans to commence operations as a National Microfinance Bank by 2020 which will facilitate in achieving geographical diversification and would require injection of additional capital. Improvement in asset quality indicators along with growth in portfolio size, reversal in operational losses, and maintenance of capitalization and liquidity indicators at adequate level remain key rating drivers going forward.

Monthly disbursements and net financing portfolio have depicted considerable increase in 2018 on account of growth in productivity, expansion in branch network and increase in headcount of employees. Management is expecting loan portfolio to double by end-2019. With growth in portfolio, asset quality indicators weakened due to various external factors. Management may ensure prudent underwriting practices going forward to facilitate growth in advances. Growth in advances portfolio was primarily facilitated through increase in deposit base, while management also utilized borrowings and deployed excess liquidity to scale advances. Overall liquidity profile of the bank depicts room for improvement on account of high concentration in deposit base and limited quantum of liquid assets in relation to deposits and borrowings. Deposits will continue to remain primarily funding source for growth in portfolio going forward. Achieving projected growth in deposit base, while improving deposit mix and reducing concentration in deposits, is considered important from ratings perspective. The bank also plans to borrow from local and international market to ensure a diversified funding mix.

For further information on this rating announcement, please contact please contact Narendar Shankar Lal (Ext: 203) or the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872.

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 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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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