Press Release

VIS Reaffirms Entity Ratings of ASA Pakistan

Karachi, April 29, 2022: VIS Credit Rating Company Limited has reaffirmed the entity ratings of ASA Pakistan Limited (‘ASA Pakistan’ or ‘the Company’) at ‘BBB+/A-3’ (Triple B Plus /A-Three). Outlook on the assigned ratings is ‘Stable’. The long term rating of ‘BBB+’ signifies adequate credit quality with reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short term rating of ‘A-3’ depicts satisfactory liquidity and other protection factors which qualify entities / issues as investment grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. Previous rating action was announced on April 29, 2021.

The assigned rating derives strength from ASA Pakistan’s association with its parent company, ASA International Holding (ASAI), which holds 99.9% of the Company’s shareholding and backed by ASA International Group Plc, a microfinance company, listed on London Stock Exchange, UK. It is one of the largest microfinance holding companies in the world, holding stake in microfinance companies in 13 countries across Asia & Africa. The ratings factor in this association, wherein the Company has been historically supported by ASA International, in the form of both technical and financial assistance. ASA Pakistan presently operates as a for-profit, non-depository microfinance institution, operating as a lending company and regulated by the Securities and Exchange Commission of Pakistan. The Company is in the process of acquiring a Microfinance Bank (MFB) license from State Bank of Pakistan. As per management, the SBP inspection for MFB license was undertaken by SBP in the latter half of 2021 and a final approval from SBP is awaited in this regard. The Company’s operations so far remain limited to Sindh & Punjab, wherein the branch network has been further reinforced from 292 to 325 in 2021.

In 2021, ASA Pakistan posted strong growth in lending operations. Overall credit risk indicators of the Company remain adequately low. Profitability indicators of ASA Pakistan depicted improvement in 2021, with RoAA reverting to historical trend. The improvement was mainly supported by strong reduction in cost of borrowings, as a result of which the ASA’s spreads improved. Improved spreads along with volumetric growth in advances allowed the Company to grow its net interest margin by 39%.

The assigned rating is constrained by liquidity indicators, which leave room for improvement. With the Company presently not having the ability to raise deposits, the operations are funded by a mix of borrowings & equity; in addition, more than 90% borrowings are foreign currency denominated, which exposes the Company to exchange risk. Going forward, both liquidity & capitalization is projected to reinforced, with main shareholder being in agreement to inject Rs. 750m of additional capital, as and when MFB license acquisition process is concluded.

For further information on this rating announcement, please contact the undersigned (Ext: 306) or Mr. Arsal Ayub, CFA (Ext: 216) at 35311861-70 or fax to 35311872-3.

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Microfinance 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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .