Press Release

JCR-VIS maintains Rating Watch Developing Status of Kashf Microfinance Bank Limited

Karachi, April 29, 2011: JCR-VIS Credit Rating Company Limited (JCR-VIS) has maintained the medium to long-term and short-term ratings of Kashf Microfinance Bank Limited (KMBL) at ‘BBB’ (Triple B) and ‘A-3’ (A-Three), respectively.

KMBL has faced a difficult economic environment during initial years of operations with accumulated losses reducing capital to Rs. 350.5m (FY09: Rs. 524.8m) in FY10. While capital adequacy ratio at 38% is considerably higher than the regulatory level, equity remains below the Minimum Capital Requirement (MCR) of Rs. 500m for FY10 for which the bank has obtained an extension from SBP till June 30, 2011. The bank is negotiating terms with potential investors to inject equity of Rs. 350m which will enable the bank to meet its MCR for FY10. However, JCR-VIS will keenly monitor the proceedings in this regard while maintaining ratings of the bank on ‘Rating Watch Developing Status’. The SBP recently raised the MCR of microfinance banks which coupled with KMBL’s current situation indicates towards further need for recapitalization of the bank. Moreover, under this process, the shareholding pattern and board constitution of the bank is also likely to change.

KMBL is a relatively new player in the microfinance sector established with both financial and social objectives. While the sector holds immense potential, the regulator’s recent encouragement for the new entrants by issuing fresh licenses for establishing microfinance banks is likely to result in a tougher competitive environment. KMBL is sponsored by a diverse group of investors and current major shareholder Kashf Holding Limited possesses considerable local microfinance experience through an associate concern, Kashf Foundation.

While the recent natural catastrophe has adversely affected microfinance institutions operating in the country, KMBL remained rather protected, mainly due to relatively limited size of operations. Nevertheless, profitability remains stressed. The bank needs to attain a minimum business volume in order to cover its fixed cost. While loss is likely to persist in 2011, the management perceives to achieve breakeven by 1Q of 2012. Going forward, profitability indicators will remain a function of growth in advances and rationalization of operating expenses while maintaining adequate asset quality.

For further information on this rating announcement, please contact Ms. Sabeen Saleem (sabeen@jcrvis.com.pk) or Mr. Maimoon Rasheed (maimoon@jcrvis.com.pk) at 021-35311861-70 and 042-36610681-84 or fax to 021-35311873.



Faheem Ahmad
President & CEO

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 2011 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .