Press Release

Ratings of Khushhali Microfinance Bank Limited Ratings of Khushhali Microfinance Bank Limited

Karachi, April 29, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Khushhali Microfinance Bank Limited (KMBL) at ‘A+/A-1’ (Single A Plus/A-One) with ‘Rating Watch-Developing’ status. VIS also reaffirms rating of ‘A’ (Single A) assigned to the TFC-I (Tier-II debt instrument) and TFC-II (Tier-II debt instrument) of KMBL. The medium to long-term rating of ‘A+’ denotes good credit quality coupled 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. The previous rating action was announced on April 30, 2021.

KMBL has maintained its prominent position as the leading provider of microcredit services in the microfinance (MF) sector of Pakistan, having a market share of 19% (FY20: 19%) in loan portfolio and 22% (FY20:24%) of deposits during the outgoing year. The ratings incorporate strong sponsor profile and implicit support of shareholders. The status of ratings reflects the uncertainty involving the financial risk profile of the bank as around 27% of the total portfolio continues to be categorized under deferred and restructured loan portfolio (DRR) at end Dec ’21, both rescheduled in the light of SBP’s direction to relax repayment terms for borrowers affected by the COVID-19 followed by internal restructuring carried out by the bank. While this identified portfolio has reduced significantly since the beginning of the allowance period, it is nevertheless anticipated that risk profile is higher on this double rolled-over portfolio. The management is of the view that the true asset quality position will emanate by end-CY22 on complete maturity of internally rescheduled portfolio.

SBP has provided another relief to microfinance banks, through relaxation of provisioning coverage by extension of incremental time for loss reporting for DRR portfolio. In addition, SBP has also revised the prudential regulations against which housing and micro-enterprise portfolios provisioning duration has been extended during the ongoing year; the same will stagger the loan portfolio deterioration. The ratings also factor in slight dip in liquidity and capitalization indicators of the bank. The Bank issued TFC-III amounting to Rs. 600m to strengthen capital adequacy further during the outgoing year. Further, the management plans to issue additional Tier-I capital amounting to Rs. 1.5b to further strengthen the resilience of portfolio losses. Three major shareholders are considering the aggregate stake sale of around 58.7% of the bank’s shareholding to a consortium of renowned strategic investors; the divestment process in underway and was expected to be completed by end-FY21; however, the same is likely to be concluded by end-CY22 in view of COVID disruption and regulatory approvals. While the financial and experience profile of overall sponsor base is expected to remain intact, VIS will review the same upon completion of the divestment process. The ratings remain underpinned to the planned improvement of the performance metrics and consolidation of the loan portfolio quality indicators, going forward.

For further information on this rating announcement, please contact Ms. Maham Qasim 042-35723411-13 (Ext. 8010) and/or the undersigned at 021-35311861-66 (Ext. 306) or email at

Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Micro-finance Banks (June 2019)

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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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