Press Release
JCR-VIS Maintains Medium to Long Term Entity Rating of The First Microfinance Bank Limited at A+ with a Stable Outlook
Karachi, April 30, 2008: JCR-VIS Credit Rating Company Limited has maintained the medium to long-term entity rating of The First MicroFinance Bank Limited (FMFB) at ‘A+’ (Single A Plus) with a ‘Stable’ outlook.
Spiraling inflation, particularly in food prices, has affected the repayment capacity of clients in the microfinance sector, predominantly those engaged in micro-enterprise activity. While the sector has seen considerable growth over the last year, profitability and self-sufficiency indicators are still considerably low across the sector as industry participants work towards achieving economies of scale by enhancing outreach requiring increased expenditure. Increasing level of delinquencies has also been faced in some geographic segments and certain products.
Having been in operations for over six years, FMFB is also still at a high growth phase with considerable increase in outreach experienced over the last year. Portfolio quality indicators witnessed weakening in some market segments, while the bank also suffered a loss for the first time since inception as branch setup was delayed. However the capital initially contributed by sponsors remains intact. Profitability indicators are however expected to recuperate if the bank is able to achieve projected growth targets while maintaining asset quality as per historical trends.
The ratings of FMFB take into account the strength of sponsors who have strong presence in financial, health and social development sectors, both locally and internationally. The bank continues to benefit from group synergies and support. During 2007, there has been some turnover in top management positions though hiring has been undertaken to fill the vacancies created. Quality of controls and strategic input of members of the board remains strong. The bank has implemented software in all branches, however on-line connectivity is expected to be achieved during the on-going year which will further enhance controls while also allowing the bank to offer value added services.
While initially the bank carried substantial liquidity on books as excess funds were invested in cash and government paper, which are considered very liquid, over time these have been channeled into core operations. On account of this, short-term rating has been revised from ‘A-1+’ (A-One Plus) to ‘A-1’ (A-One). The quality of asset mix is however considered sound. The bank has also attracted increased amount of retail deposits, though building a sizeable pool of such funds may still require some time. Capital injection may also be required within the long term rating horizon to maintain the bank’s risk profile while pursuing its growth targets.
For further information on this rating announcement, please contact the undersigned (Ext: 608) or Ms. Sobia Maqbool (Ext: 506) at 5311861-72 or fax to 5311873.
Sabeen Saleem, CFA
Chief Rating Officer