Press Release

JCR-VIS Assigns Positive Outlook to FINCA Microfinance Bank Limited

Karachi, April 30, 2015: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of FINCA Microfinance Bank Limited (FINCA MFB) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’. The previous rating action was announced on April 30, 2014.

The ratings take into account association of FINCA MFB with FINCA International, an institution having vast global experience in the microfinance sector through its various subsidiaries. The ratings also incorporate robust operational platform of FINCA MFB translating into a larger loan book and deposit base. During FY14, the bank has streamlined structural reforms in line with global standards of FINCA International where the management structure and operational policies experienced further rationalization. The management team has depicted stability and comprises experienced professionals.

During FY14, the bank further expanded its network by opening multiple branches while transforming all sales and service centers into permanent booths. Leveraging on a solid platform, the bank has doubled its financing portfolio during the year. Microcredit portfolio of the bank is mainly concentrated in urban market. In efforts to strengthen its product offering and explore the under-served rural market, the bank has launched some new products; contribution from which will be ascertained over time. Infection levels have remained within manageable limits.

Given higher advances to deposits ratio, liquid assets carried on balance sheet declined by end-FY14. Moreover, the bank has also mobilized commercial borrowings with plans to enhance the same, going forward. Given the rapid growth plans of the bank, focus is likely to remain on big ticket deposits. Developing a broad based depositor profile may take some time. In view of this, the bank may need to maintain a larger liquidity cushion on balance sheet to cater to large withdrawals.

As expected, FY14 was the first fully profitable year since the bank’s inception. The interest income augmented on the back of volume expansion and higher spreads. Larger client base also helped increase the loan processing fees which continue to supplement the bottom line. Overheads continue to remain high during FY14. Given consolidation in network along with focus on portfolio growth and staff productivity, overheads may rationalize over time. However, given the nature of loan portfolio, these may persist higher than peer banks in at least the near to medium term.

The bank’s equity augmented by end-FY14 on the back of enhanced retained earnings. With expansion in credit portfolio, Capital Adequacy Ratio (CAR) of the bank declined, though remained comfortably above the minimum regulatory requirements. Given future growth plans of FINCA MFB, the bank is in the process to invite further capital during 1HFY15.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA at 021-35311861-70 (Ext. 604) or Maimoon Rasheed at 042-35743411-13 or fax to 021-35311873.


Javed Callea
Advisor

Applicable Rating Criteria: Micro Finance Institutions (October 2003)
http://jcrvis.com.pk/images/MicroFinance.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 2015 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .