Press Release

VIS Maintains Entity Ratings of Advans Pakistan Microfinance Bank Limited

Karachi, April 29, 2021: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Advans Pakistan Microfinance Bank Limited (APMBL) at ‘BBB+/A-3’ (Triple B Plus /A-Three). The outlook on the assigned ratings has been revised from ‘Rating Watch-Developing’ to ‘Stable’ status. 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-3’ indicates satisfactory liquidity and other protection factors qualify entities/issues as to investment grade. The previous rating action was announced on April 28, 2020.

APMBL is a small-sized microfinance bank, holding a province-specific license for operating within Sindh. Advans SA Sicar holds 100% shareholding of the bank. Rating draws comfort from the sound profile and experience of Advans SA in microfinance institutions in several countries. Revision in rating outlook reflects implicit support from sponsors as evident from equity injection during 2020 and 1Q21, higher booking of provisions to mitigate the impact of increasing gross infection, and greater buffer of liquid assets in relation to deposits and borrowings.

Asset quality indicators of the bank weakened in 2020 in view of booking higher NPLs amidst the rising credit impairment across the industry; however the same witnessed improvement at end-Mar’21 with decrease noted in non-performing advances. Given major proportion of loan portfolio comprising EMI portfolio, the bank is well positioned to devise its NPL mitigation strategy ahead of time. To further mitigate the impact of higher infections, the bank maintained high levels of provisioning coverage during 2020 and 1Q21. Despite low granularity as evident from high top 50 depositor concentration, liquidity profile of the bank was supported by growth in deposit base along with maintenance of higher coverage of liquid assets in relation to deposits and borrowings. Materialization of management’s plan to upgrade the deposit team and improve depositor concentration is considered important.

Profitability indicators of the bank declined in 2020 on the back of reduced spreads, higher provisions and decrease in non-markup income of the bank; however, the same have witnessed improvement during 1Q21 as evident from growth in net interest income led by higher spreads and disbursements. On a net profitability basis, the bank envisages to achieve monthly break-even by July’21. Going forward, management envisages improvement in profitability profile on the back of projected increase in spreads, lower cost of risk and uptick in disbursements. Capitalization profile of the bank is supported by consistent sponsor support in the form of equity injection. The Bank’s CAR remains comfortably above the minimum CAR requirement of 15%.

In view of continued uncertainty and severity of impact of the pandemic on the economy in general and microfinance sector in particular, the outlook on the ratings will remain vulnerable.

For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext: 306) at (021) 35311861-66 or email at info@vis.com.pk.

Faryal Ahmad Faheem
Deputy CEO
Applicable Rating Criteria: Microfinance Institutions (June 2019)
https://www.vis.com.pk/kc-meth.aspx

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