Press Release

VIS Revises Entity Ratings of NRSP Microfinance Bank Limited

Karachi, April 27, 2023: VIS Credit Rating Company Limited (VIS) has revised the entity ratings of NRSP Microfinance Bank Limited (‘NRSPB’ or ‘the Bank’) to ‘BBB+/A-2’ (Triple B Plus/A-Two) from ‘A-/A-1’ (Single A Minus/A-One). The long-term rating of BBB+ signifies adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. The outlook on the assigned ratings has also been revised from ‘Negative’ to ‘Rating Watch – Developing’. The previous rating action was announced on April 29, 2022.

The assigned ratings of NRSPB incorporate presence of reputable sponsors carrying reasonable experience and understanding of the microfinance sector. Sponsor’s commitment has historically been demonstrated by way of both technical and financial support. VIS anticipates forthcoming support in the foreseeable future. The ratings encapsulate the lingering impact of Covid-19 along with the impact of dismal macroeconomic indicators wherein portfolio credit quality has been impacted and the financial risk profile of the Bank has weakened. The deterioration of asset quality has led to a sizable negative bottom line which in turn has pushed the already non-complaint capital adequacy ratio (CAR) to negative by end of the outgoing year. The revision in ratings takes into account the delay in equity injection proposed by the sponsors along with escalated level of credit risk faced by the Bank during the rating review period. Cognizant of the increased credit risk prevalent in the sector, the management has taken measures including increased focus on EMI-based products and lowering exposure to un-secured segments.

The ratings factor in contraction of spreads on account of reduced yield of micro-credit portfolio in line with suspended income on non-performing loans (npls) along with higher cost of funding originating from policy rate hikes evidenced during the outgoing year. Subsequently, to mitigate the increasing funding cost, NRSPB has strategically reduced higher costing fixed deposits during FY22. Further, the liquidity position was also marked by a downturn as evidenced from coverage of liquid assets by deposits and borrowings on account of divestment from liquid avenues along with cashflow constraint faced owing to low recovery ratio in light of internal restructuring carried out largely culminating in npls. The ratings take note of additional equity injection to the tune of Rs. 3.5b along with sizable recoveries from written-off portfolio and outstanding npls expected in the ongoing year to bridge the capital shortfall in order to make the CAR complaint with the regulator requirement. The ratings will remain dependent on successful and timely execution of both planned equity infusion and improvement in portfolio health through recoveries. Moreover, the strengthening of profitability and liquidity metrics is also important for the sustenance and review of 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 criterion: Micro Finance Banks (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 .