Press Release
VIS Reaffirms Entity Ratings of FINCA Microfinance Bank
Karachi, April 30, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of FINCA Microfinance Bank Limited (FINCA MFB) at ‘A/A-1’ (Single A/A-One). Outlook on the assigned ratings is ‘Rating Watch-Developing’. The medium to long-term rating of ‘A’ denotes good credit quality, 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, 2020.
The assigned ratings of FINCA MFB incorporate association of the bank with FINCA Impact Finance, a global microfinance organization operating in 20 subsidiaries, including Pakistan. FINCA MFB continues to receive support from its parent through transfer of technical expertise emanating from FINCA’s global experience. FINCA MFB has successfully embarked upon various IT initiatives, which are expected to bring operational efficiencies, going forward.
The ratings take into account the currently manageable liquidity position of the bank led by sizeable investment in risk free avenues as growth in micro-credit portfolio was limited. Liquidity profile of the bank is considered adequate; however high depositor concentration levels and increasing advances to deposit ratio remain a rating concern. Improvement in deposit profile (including depositor concentration and mix) remains a key focus area of the management. Despite a decline in mark-up spreads and disbursements during CY20, overall profitability of the bank improved primarily owing to higher income earned on bank deposits, decrease in administrative expense and one-off gain on disposal of fixed assets. Profitability of the bank is projected to depict improvement in line with planned growth in loan portfolio over the medium term, improvement in deposit mix along with expected increase in benchmark rates, going forward.
Assessment of capitalization profile reflects that equity base of the bank has complied with the minimum capital requirement of Rs. 1.0b stipulated for microfinance banks with nationwide operations. Capital Adequacy Ratio (CAR) of the bank increased to 20.93% by end-CY20 due to range bound growth manifested in advances portfolio and relatively higher excess liquidity parked in risk free investments. Given growth plans over the medium term, sizeable internal capital generation would be required to maintain CAR above the minimum regulatory requirement. The same is likely to be attained if the deterioration in asset quality is countered effectively. Ratings of FINCA will continue to remain at ‘Rating Watch’ status due to a sizeable re-structured portfolio yet to be recovered along with increasing non-performing loans reported at end-1Q21. Going forward, ratings are dependent on achievement of projected growth plans while improving asset quality indicators, strengthening deposit profile and retaining buffer over regulatory capital requirement. In view of continued uncertainty and severity of impact of the pandemic on the economy in general and microfinance sector in particular, the outlook on the ratings will remain vulnerable.
For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext: 306) at (021) 35311861-66 or email at info@vis.com.pk.
Faryal Ahmad Faheem
Deputy CEO
Applicable Rating Criteria: Microfinance Institutions (June 2019)
https://www.vis.com.pk/kc-meth.aspx