Press Release

VIS Assigns Initial Ratings to Sindh Microfinance Bank Limited

Karachi, January 09, 2025: VIS Credit Rating Company Limited (‘VIS’) has assigned initial entity ratings of ‘A/A1’ (Single A/A One) to Sindh Microfinance Bank Limited (‘SMFB’ or the ‘MFB’).

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 ‘A1’ denotes good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings is ‘Stable’.

SMFB was incorporated on March 27, 2015, as a public unlisted company limited by shares under the repealed Companies Ordinance, 1984 (now replaced by the Companies Act, 2017). The MFB obtained its microfinance banking license from the State Bank of Pakistan (SBP) on October 16, 2015, allowing it to operate within the Sindh Province. Subsequently, it received a certificate of commencement of business from the Securities & Exchange Commission of Pakistan (SECP) on November 30, 2015, and a certificate of commencement of banking business from the SBP on April 15, 2016.

The assigned ratings of Sindh Microfinance Bank Limited reflect its status as a wholly owned subsidiary of Sindh Bank Limited (SNDB), a financially stable institution with a long-term entity rating of AA- by VIS, extending quasi-sovereign support implications to the MFB. SMFB's ratings are supported by its strong capitalization, as evidenced by a CAR of 44.0% as of Sep’24, well above the regulatory requirement, and a consistent increase in its equity base.

The ratings are further underpinned by SMFB’s proactive approach to managing asset quality, which includes borrower-capacity cautious practices, stringent operational controls, and effective monitoring systems for loan officers. The MFB has demonstrated significant growth in its Gross Loan Portfolio (GLP), with diversified loan products targeting underserved segments, particularly women empowerment initiatives. Asset quality remains strong with a gross infection ratio of 0.9% and as provision coverage for Stage-2 and Stage-3 assets stood at 99.4% each of their respective gross exposures.

Liquidity metrics have improved, with the Liquid Assets to Deposits and Borrowings (LADB) ratio reaching 70.4% in 9MCY24. While deposit concentration risk and reliance on related-party funding require attention, the stickiness of major deposits mitigates immediate liquidity concerns. The asset-liability maturity analysis further strengthens this position, revealing no significant funding gaps. As such, liquidity and funding pressures remain well-managed, supporting the MFB's ongoing growth and stability.

With plans for national expansion following the anticipated Pan-Pakistan license approval in CY25, the ratings incorporate potential execution risks associated with scaling operations. However, the management's cautious and strategic approach is expected to mitigate these risks, presenting opportunities for growth in market share, revenue diversification, and geographic reach. SMFB’s operational resilience is also supported by its structured governance framework and strong internal controls.

The MFB has implemented measures to address industry challenges, such as high attrition among loan officers. These initiatives have contributed to improved staff retention and operational efficiency. Additionally, the integration of collection and disbursement responsibilities, along with real-time KYC assessments, helps maintain strong asset quality and operational efficiency. Maintaining a strong focus on asset quality, liquidity, and capital adequacy will remain critical to supporting sustainable expansion and safeguarding the institution’s financial stability.

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

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 2025 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .