Press Release
VIS Reaffirms Ratings of HBL Microfinance Bank Limited
Karachi, April 30th, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of HBL Microfinance Bank Limited (HBL MfB) (formerly The First MicrofinanceBank Limited (FMFB)) at ‘A+/A-1’ (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 ‘A-1’ denotes high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on April 28, 2023.
HBL Microfinance Bank Ltd. (‘HBL MfB’ or the ‘Bank’) was incorporated in November 2001 as a public limited company under the Companies Ordinance, 1984. HBL MfB was established 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.
The ratings assigned to HBL MfB incorporates its strong ownership profile, as majority shareholding is vested with Habib Bank Limited (HBL) and the Aga Khan Development Network, with the latter possessing several years of multijurisdictional experience in microfinance. The ratings also take into account the favorable asset quality indicators, in a challenging economic environment. While there was a minor increase in gross infection, provision coverage increased concurrently and incremental infection has dropped. Investment portfolio, primarily comprising government securities, with high proportion of floating rate securities, also supports the bank credit and market risk profile. Downside risk is posed by weak economic indicators, especially inflation, which will continue to stress micro-credit borrowers’ repayment ability, while keeping operating costs high. Spreads have narrowed in the past two years, however these are likely to recover as the portfolio is re-priced and further rate increases are not anticipated. Given a relatively longer portfolio duration, asset re-pricing trends maybe slower than peers. Nevertheless, sound asset quality and continued growth will ensure overall profitability improves in 2024.
Certain large related party deposits may, mitigate the otherwise high withdrawal risks potentially arising from significant concentration. Ready access to liquidity from parent Bank also supports overall liquidity risk profile. The Bank's capital adequacy ratio remains compliant with the minimum regulatory requirement, although the cushion remains marginal, despite the equity injection in 2022 and the issuance of subordinated debt in 2023. Demonstrated through an approval of an equity injection by the Parent in Apr’24, of up to Rs. 6.0b in the Bank and expected further sponsor support in future, as well as consistent track record of healthy profitability mitigates any concerns. Going forward, ratings will be contingent upon a largely maintained asset quality profile, given the still stressed economic climate in the country.
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
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