Press Release
JCR-VIS Reaffirms Ratings of U Microfinance Bank Limited at A-/A-2
Karachi, April 29, 2015: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of U Microfinance Bank Limited (UMBL) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on April 30, 2014.
UMBL’s ratings reflect its association with a strong sponsor, Pakistan Telecommunication Company Limited (PTCL) - the largest telecom company in Pakistan - having 100% shareholding in the bank. PTCL is co-owned by the Government of Pakistan and Etisalat International Pakistan (LLC) (Etisalat). The management control of PTCL rests with Etisalat, a state owned Telecom Corporation of UAE, having a long-term rating of ‘AA-’ by an international rating agency.
On-going support from the sponsor is reflected in the equity injection of Rs. 100m in February 2015, following a loss in FY14, creating a shortfall of Rs. 60.19m vis-à-vis the required minimum capital of Rs. 1b for nation-wide operations. This shortfall was created on account of a much larger loss reported in FY14 vis-à-vis projections, which in turn was on account of shortfall in revenues and high level of overheads in view of opening of 10 new branches during the year. Entry of new players in Branchless Banking (BB) has resulted in increased competition, exerting upward pressure on commission rates. Growth in lending activity may facilitate in rationalizing overheads. The Board of Directors has placed significant emphasis on achieving break-even in the on-going year.
In 2014, the bank was able to achieve its loan portfolio target while deposit mobilization activity also picked up pace. At current level, the deposit profile features significant concentration; liquidity risk associated with the same is mitigated by the high level of liquid assets carried on balance sheet. Both excess capital and liquidity are likely to be absorbed as the bank scales up its lending activities, though still projected to be maintained at healthy levels over the foreseeable horizon.
For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA (Ext: 604) at 021-35311861-70 (10 lines) or fax to 021-35311873.
Javed Callea
Advisor
Applicable Rating Criteria:
Microfinance Institutions (October 2003)
http://www.jcrvis.com.pk/images/MicroFinance.pdf