Press Release
VIS Reaffirms Entity Ratings of Khushhali Microfinance Bank Limited
Karachi, July 08, 2025: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Khushhali Microfinance Bank Limited (‘KMBL’ or the ‘Bank’) at 'A-/A2' (Single A Minus/A Two). Medium to long term rating of 'A-' indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short term rating of 'A2' indicates good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings remains ‘Rating Watch - Negative.’ Previous rating action was announced on May 30, 2024.
KMBL’s ratings reflect the Bank’s continued relevance with deposit market share of 15.9% in microfinance segment, despite facing multiple structural and operational headwinds. The ratings incorporate a revised credit administration and recovery framework aimed at improving asset quality and risk segmentation. The Bank has made considerable headway in optimizing its loan origination, with risk-related functions structurally segregated to enhance governance and credit control. The decline in loan officer count, branch network, and active borrowers is attributed to deliberate portfolio rationalization efforts, supported by a strategic shift toward higher ticket, secured, and EMI-based lending. Notably, asset quality indicators exhibited substantial improvement, driven by focused recoveries, proactive provisioning, and unwinding of high-risk exposures, although significant outstanding non-performing accounts still weigh on financial performance.
Liquidity indicators show a decline in financial institutional placements. Nonetheless, the deposit base remains relatively stable, with improved granularity and a shift towards retail and savings mobilization. KMBL continues to prioritize strengthening its liquidity buffer through targeted internal thresholds. Profitability remained under pressure due to elevated funding costs and legacy credit impairment; however, an uptick in markup income and declining provisioning expenses provide a foundation for future recovery. The long-term self-sustaining plan approved by the Board outlines a roadmap to restore capital adequacy through a combination of improved earnings and asset base expansion, followed by sponsor support.
The outlook reflects ongoing capitalization constraints, with equity and Tier-1 capital remaining deeply eroded. The persisting uncertainties related to the timing and materialization of capital support and clarity around long-term strategic direction remains a key rating constraint. Nevertheless, recent performance indicators—drawn from the Bank’s latest year-to-date financials—suggest that a gradual turnaround is underway. Proactive portfolio realignment toward better-quality, secured lending has translated into lower credit-impairment pressures, while cost management and modest balance-sheet expansion have supported a return to profitability. Furthermore, comfort is driven from sponsors active engagement in providing strategic guidance to the Bank. The timely execution of the transformation plan, coupled with sustained improvements in operating efficiency, asset quality, and capital structure, will be critical to the Bank’s long-term viability and rating trajectory.
For further information on this rating 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