Press Release
VIS Reaffirms Ratings of HBL Microfinance Bank Limited
Karachi, April 30, 2025: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of HBL Microfinance Bank Limited (‘HBL MfB’ or the ‘Bank’) at ‘A+/A1’ (Single A Plus/A One). The medium to long-term rating of ‘A+’ denotes good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A1’ denotes strong likelihood of timely repayment of short-term obligations with excellent liquidity factors. Outlook on the assigned ratings remain ‘Stable’. The previous rating action was announced on April 30, 2024.
HBL Microfinance Bank Limited was incorporated in November 2001 as a public limited company under the Companies Ordinance, 1984 (repealed company act 2017). HBL MfB started business in February 2002 after receiving certificate of commencement of business as a nation-wide microfinance bank, licensed by the State Bank of Pakistan (SBP), The Bank was created through a structured transformation of the credit and savings section of the Aga Khan Rural Support Programme (AKRSP) with the mission to respond to poverty and contribute to the social and economic well-being of the society by providing opportunities to under-privileged households, to improve their quality of life.
The ratings assigned to HBL MfB reflect its strong sponsor profile, given the majority ownership of Habib Bank Limited and its continued support, evident also in the recent capital injections in 2024 and 2025.
The Bank's strategic shift toward a secured loan portfolio, along with increased investment in government securities, supports risk mitigation efforts amid a challenging macroeconomic and credit environment. The Bank has undertaken deliberate measures to de-risk its portfolio, including reducing exposure to bullet and group-based lending, while focusing on high-ticket, secured lending such as housing finance. Nevertheless, asset quality indicators mark deterioration over 2024, with a sharp rise in non-performing loans and provisioning costs, triggered mostly by losses in the agriculture segment. A cautious approach in the segment is taken since then will likely mitigate pressures going forward.
Liquidity has remained satisfactory, with notable improvement in the liquid asset reserves. On the funding side, while deposits contracted slightly due to a deliberate reduction in institutional savings accounts, efforts to enhance current deposit mobilization and branchless banking channels are beginning to materialize. Despite support from higher investment income, profitability took a significant hit during 2024 due to higher funding cost amid high policy rate environment and particularly due to provisioning expenses amid the initial implementation of IFRS-9 and agriculture portfolio delinquencies stemming mainly from industry level issues and 2024 wheat crises. Nevertheless, capitalization levels remained intact following equity injection and Tier-II capital issuance, boosted further by a fresh injection in March this year to bolster future growth. The Bank plans to further optimize its deposit mix, expand the strengthened recovery mechanisms, and diversify income through a more balanced portfolio. The transition to an Islamic banking model, in line with regulatory timelines, is also in progress. The ratings will be contingent on improving asset quality profile and financial metrics through ongoing strategic realignment.
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