Press Release

VIS Reaffirms Ratings of NRSP Microfinance Bank Limited

Karachi, April 30, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of NRSP Microfinance Bank Limited (NRSPB) 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 27, 2018.

The assigned ratings of NRSPB incorporate sizeable loan book, sound internal capital generation, sustained liquidity indicators and presence of reputable sponsors carrying reasonable experience of the microfinance sector. Sponsor’s commitment has been demonstrated in the recent years in the form of both technical and financial support. VIS anticipates this support to continue in case the need arises. However, incremental infection observed in agriculture portfolio particularly sugarcane related and having a bullet repayment structure has put a drag on the institution’s profitability. Going forward, maintenance of asset quality indicators will remain a key rating factor.

With growth in active loans and higher average loan size, gross advances portfolio of the bank increased during FY18. Agri inputs remained the flagship product of the bank as it constituted around two-thirds of the overall portfolio. These are bullet structure loans extended to farmers and are backed by group guarantee. Due to the seasonal nature of crops cultivation, demand for such loans is linked to crop cycles. Going forward, the management plans to reduce concentration of Agri portfolio by increasing proportion of other existing products in the mix. The management must continue to ensure prudent risk management as majority of the portfolio comprises agricultural based loans and entails bullet repayment. The ratings are dependent upon balancing of portfolio to mitigate the concentration in agri portfolio and improvement in asset quality indicators, going forward. Given investment avenues of the bank are restricted to government securities and money market mutual funds, hence credit risk emanating from the same is considered low.

With surplus liquidity utilized towards financing activities, liquid assets-to-total deposits & borrowings declined marginally by end-FY18. Deposits remained the primary funding source for the bank; the increase was largely manifested in fixed deposits while depositor concentration remained high as top 50 depositors accounted for almost two-thirds of total deposit base. Despite decrease in mark-up spreads during the period, profitability of the bank improved primarily owing to volumetric increase in the microcredit portfolio. Moreover, the non-markeup income supplemented the income generating capability of the bank. Given higher provisioning expense recorded coupled with sizable increase in administrative expenses on account of geographical expansion, Operating Self Sufficiency declined on a timeline basis.

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