Press Release

VIS Maintains Entity Ratings of Pak Oman Microfinance Bank Limited

Karachi, April 28, 2023: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Pak Oman Microfinance Bank (POMBL) at ‘A-/A-2’ (Single A minus /Single A-Two). The long-term rating of ‘A-’ signifies good credit quality with adequate protection factors. Risk factors may vary with possible changes in the economy. The short term rating of ‘A-2’ indicates good certainty of timely payment, sound liquidity factors supported by good fundamental protection factors and small risk factors. Access to capital markets is good. The outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. The previous rating action was announced on April 30, 2022.

The assigned ratings take into account POMBL being wholly owned by LOLC Asia Pvt Limited; the latter in turn is 100% owned by LOLC Group Sri Lanka which is one of the biggest and diversified conglomerates having investments in various industries including financial services, insurance, manufacturing, trading, plantation, renewable energy, and leisure. While POMBL would continue to derive technical support from the group; however, given the current economic conditions in Sri Lanka, ratings will remain sensitive to support from the group. Ratings incorporate improvement in governance and control framework along with changes in management. Moreover, the ratings encapsulate the lingering impact of Covid-19, catastrophic floods and adverse macroeconomic indicators wherein portfolio credit quality has been impacted and the financial risk profile of the Bank has weakened. Moreover, with sizable product concentration in microenterprise loan which was majorly impacted by economic downturn, the disbursements dropped during the outgoing year resulting in stagnant gross loan portfolio. In addition, given that almost the entire portfolio entails unsecured lending the same adds to credit risk faced by the Bank. Cognizant of the elevated repayment risk prevalent in the sector, the management is taking measures to lower the exposure to un-secured segments to three-fourths of the total portfolio by end of the ongoing year. The improvement in micro-credit risk segregations and asset quality indicators will remain critical for sustenance of ratings going forward.

In addition, the ratings factor in contraction of spreads on account of reduced yield of micro-credit portfolio in line with suspended income on npls, higher cost of funding originating from policy rate hikes evidenced during the outgoing year and lag in transfer pricing experienced. The liquidity profile is sound in terms of comfortable coverage of liquid assets to deposits and borrowings; however, the same wanes on account of high advances to deposit ratio and sizeable deposit concentration. Going forward, management envisages increase in quantum of borrowings in order to fund portfolio growth plans in the medium term. The capitalization profile remains sound as Capital Adequacy Ratio remains comfortably above the regulatory requirement. Room for growth in risk weighted assets remains considerable. Going forward, rescue of profitability indicators and improvement of liquidity metrics will remain critical for ratings.

For further information on this rating announcement, please contact the undersigned at 35311861-70 (Ext: 207) or Ms. Maham Qasim (Ext: 216) at 042-35723411-13.

Sara Ahmed

Applicable Rating Criteria: Microfinance Institutions (June 2019)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .