Press Release

VIS Maintains Entity Ratings of Advans Pakistan Microfinance Bank Limited

Karachi, April 30, 2024: VIS Credit Rating Company Limited has maintained the entity ratings of Advans Pakistan Microfinance Bank Limited (‘APMFB’ or the ‘Bank’) at ‘BBB/A-3’ (Triple B/ A-Three). Medium to long term rating of ‘BBB' indicates adequate credit quality; Protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. Short-term rating of 'A-3' indicates satisfactory liquidity and other protection factors qualify entities/issues as to investment grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. Outlook on the assigned ratings has been revised to ‘Positive’ from ‘Stable.’ Previous rating action was announced on April 28, 2023.

APMFB was established in Pakistan on April 17, 2012, as a publicly listed company under the then applicable Companies Ordinance, 1984 (which has since been replaced by the Companies Act, 2017). The Bank obtained a microfinance operations license from the State Bank of Pakistan (SBP) on June 28, 2012, allowing it to conduct operation in the province of Sindh. The Bank’s principal business is to provide microfinance banking and related services to the poor and underserved segment of the society as envisaged under the Microfinance Institution Ordinance, 2001.

The rating of APMFB's takes into account the recent change in the Bank's ownership structure. Formerly, APMFB operated as a subsidiary of Advans S.A. Sicar, which held a significant majority stake in the Bank. However, on March 20, 2024, MNT Halan Pak B.V. acquired the entire shareholding of APMFB from Advans S.A. Sicar. While changes in ownership will likely bring potential benefits such as access to fresh funds, expertise, and strategic direction, they also introduce transitional risks and uncertainties. The transition will entail adjustments in governance structures, management practices, and strategic priorities, in addition to a change in corporate identity. The Bank is expected to roll out business on a pan Pakistan level, with fresh equity and new products, particularly in the digital space. The Bank has demonstrated sound credit risk management capabilities, amid economic uncertainties, as evidenced by relatively sound asset quality. Non-Performing Loans (NPLs) have reduced with a slight improvement in gross infection ratio. Asset quality remains a focal point, with the Bank's predominantly unsecured loan portfolio exposing it to elevated credit risk. While efforts to introduce risk mitigation strategies, such as transitioning to secured loans backed by gold, are noted, the current reliance on unsecured loans necessitates continued vigilance in managing credit risk to prevent further deterioration in asset quality.

Furthermore, the Bank faces profitability challenges stemming from margin compression, and constrained business volumes. Operating expenses have also surged, driven by inflationary pressures and regulatory penalties, resulting in a net loss during the review period. Capitalization indicators depict a weakened position, with a decrease in total equity attributed to reported losses. Despite equity injections and stable risk-weighted assets, the Capital Adequacy Ratio (CAR) deteriorated, reflecting strains on capital adequacy amid incurred losses and having fallen below minimum capital requirements by Q1’24.

Overall, while APMFB demonstrates resilience in managing credit risk and maintains stability in liquidity, challenges related to operational efficiency, and profitability warrant monitoring. The rating is contingent on the sponsor's commitment to regularize the breach of minimum equity and CAR requirements as mandated by the State Bank of Pakistan (SBP) by June’24, and to ensure the ongoing viability of the Bank's operations as a going concern.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.

Applicable Rating Criteria:

Micro-Finance Banks
https://docs.vis.com.pk/docs/MicroFinance-Oct-2023.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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 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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .