Press Release

VIS Revises Entity Ratings of Khushhali Microfinance Bank Limited

Karachi, April 28, 2023: VIS Credit Rating Company Limited (VIS) has revised the entity ratings of Khushhali Microfinance Bank Limited (KMBL) to ‘A-/A-2’ (Single A minus/A-Two) from ‘A/A-2’ (Single A /A-Two). The medium to long term rating of ‘A-’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. The outlook on the assigned has been revised to ‘Rating Watch – Negative’ from ‘Rating Watch - Developing’. The previous rating action was announced on December 16, 2022.

VIS has also revised rating assigned to TFC-I (Tier-II debt instrument) and TFC-II (Tier-II debt instrument) of KMBL from ‘BB-’ (Double B Minus) to ‘B’ (Single B). The long-term rating of ‘B’ denotes obligations deemed less likely to be met. Protection factors are capable of fluctuating widely if changes occur in the economy. Overall quality may move up or down frequently within this category or into higher or lower rating grade. The revision in ratings of Tier-II instruments take note of the lock-in-clause being invoked on both Tier-II instruments of the Bank by SBP resulting in missed coupon payment instances recorded during the rating review period. With Capital Adequacy Ratio (CAR) breach, further missed payments on coupons may occur. Therefore, the risk of conversion of both instruments into common equity remains high.

KMBL is one of the leading providers of microcredit services in the microfinance sector of Pakistan, having a market share of 18% (FY21: 19%) in loan portfolio during the outgoing year; however, in line with adoption of portfolio consolidation strategy post CAR breach, the Bank has forgone its market leader position during the ongoing year. The ratings incorporate strong sponsor profile and implicit support of shareholders. The ratings take into account the lingering impact of Covid-19 along with the impact of the recent floods wherein portfolio credit quality has been impacted and the financial risk profile of the Bank has weakened. Around 12% of the total portfolio continues to be categorized under deferred and restructured loan portfolio at end of the outgoing year; the recoveries from wherein may take time and are uncertain. The weakening of asset quality indicators has led to a negative bottom line, which has in turn placed the CAR at below minimum regulatory requirement. Further, KMBL’s liquidity position was also marked by a downturn on account of multiple factors including liquidation of investments, reduction in balances held with financial institutions, cashflow constraint faced due to low recovery ratio in light of sizable internal restructuring carried out and high incidence of non-performing loans during the period under review. The revision in rating takes into account non-participation of three-fifths of the existing shareholders being closed-end funds in injecting additional equity. While management has presented their plan to raise equity from remaining sponsors along with expected sale of exiting international shareholders stake, the timely and successful implementation of the same will remain important. Going forward, strengthening of capital adequacy and liquidity of the Bank is important for sustenance of ratings.

For further information on this rating announcement, please contact Ms. Maham Qasim at 042-35723411-13 (Ext. 8010) and/or the undersigned at 021-35311861-64 (Ext. 306) or email at

Sara Ahmed

Applicable rating criterion: Micro Finance Banks (June 2019)

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