Press Release

VIS Reaffirms Ratings of FINCA Microfinance Bank Limited

Karachi, April 30, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of FINCA Microfinance Bank Limited (FINCA MFB) at ‘A/A-1’ (Single A/A-One). 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. The short-term rating of ‘A-1’ denotes high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on April 23, 2018.

The assigned ratings of FINCA MFB incorporate association of the bank with FINCA Impact Finance, 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, adequate asset quality and improved profitability of the bank. FINCA MFB has embarked upon various IT initiatives which are expected to bring operational efficiencies, going forward.

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 FY18, asset quality indicators have declined slightly. As a result, the management has embarked upon various risk mitigation initiatives including post-disbursement screening mechanism, pre-disbursement screening of SE products, deployment of regional compliance officers, 90-day write-off structure; impact of the same will be seen over time.

Deposits continue to be the primary source of funding for the bank that has increased by end-FY18. Deposit mix largely remained the same with term deposits comprising more than two-third of the deposit base. During FY18, liquidity profile of the bank declined slightly due to decrease in liquid assets as a proportion of deposits and borrowings. However, granularity in deposits exhibited a positive trend on a timeline basis. With decrease in return on mark-up bearing assets and marginal increase in cost of funds, spread of the bank has declined during FY18. However, sizeable growth in microcredit portfolio led to higher net mark-up income. Despite lower operational self-sufficiency, the bank reported a higher net profit during FY18.

FINCA MFB is focusing towards leveraging technology for improving efficiencies and has embarked upon various IT initiatives including digital financial services project, upgradation of IT infrastructure, implementation of new core banking software and business intelligence solution during the period under review.

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

VIS Credit Rating Company Limited