Press Release

VIS Maintains Entity Ratings of ASA Pakistan

Karachi, April 29, 2021: VIS Credit Rating Company Limited has maintained 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 has been revised from ‘Rating Watch-Negative’ to ‘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 30, 2020.

The assigned ratings derive strength from ASA Pakistan’s association with it with parent company, ASA International Holding (ASA International), which holds 99.9% of the Company’s shareholding. ASA International is the international spin-off of ASA of Bangladesh. It is one of the largest microfinance holding companies in the world, holding stake in microfinance companies in 12 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 (MB) license from State Bank of Pakistan. However, SBP inspection for MB issuance, which was expected to be completed in 2020, has so far been delayed on account of Covid-19. As per management, pre-requisites for the conversion have been completed and MB license acquisition process should be concluded by September 2021, barring any further Covid-19 delays. The Company’s operations so far remain limited to Sindh & Punjab, wherein the branch network has been further reinforced from 281 to 292 in 2020.

During our latest review, moderate growth was noted in the Company’s gross lending portfolio. As a result of the pandemic-induced slowdown, credit risk across the industry stood heightened during the period. Nevertheless, given relief measures allowed by the regulator, the enhanced credit risk has so far not reflected on the asset quality indicators of the industry. 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.

In case of ASA Pakistan, we did note an uptick in its gross infection ratio, albeit the Company has taken adequate provisions and net infection stands in the medium to low category. The Company’s profitability indicators were impacted by higher credit impairment charge and administrative overheads, with the latter being higher as a result of the MB conversion process. Resultantly, OSS measure has declined, albeit is still considered to be adequately high. Overall profitability indicators of the company compare favorably to the MB industry.

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, about a third of the borrowings are foreign currency denominated, which exposes the Company to exchange risk. However, both liquidity & capitalization is projected to reinforced, with main shareholder being in agreement to inject Rs. 750m of additional capital, as and when MB license 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)
https://www.vis.com.pk/kc-meth.aspx

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