Lahore, May 06, 2022 (PPI-OT):Telenor MFB (‘the Bank’), associated with robust sponsors, is a mid-tier player in Pakistan’s microfinance sector with ~2.5% share in total gross loan portfolio as at End-Dec’21. The bank’s strategic vision is focused towards digitization with notable developments underway for growth of the branchless platform, ‘Easypaisa’. Ambition of a sustainable consumer platform rests upon increasing acquisition, retention and transactional throughput in branchless banking (BB) wallet accounts. While growth strategies for the Bank have been taken under consideration, overall performance indicators reflected deteriorated outlook in CY21 due to industry wide challenges on Covid relief portfolio side and new IBFT pricing regime.

Although the Bank’s GLP recorded a decline over the last two years, the existing portfolio significantly constitutes the loans disbursed under a new and improved credit underwriting model. Bottom line of the Bank reported a loss of PKR 10,765mln (Loss in CY20: PKR 10,704mln). Management’s commitment to recoup the asset health and consolidate the Bank’s position within the stipulated time is an acute necessity. Cognizant of this, the management has redesigned the business model. The focus areas would be secured portfolio and EMI, in which growth potential is being envisaged. Digital strategy is being emphasized as lynchpin to the model.

While reach-out is being enhanced, cashless modes of transactions would be adapted mostly. The management has represented that asset quality on the fresh portfolio is good. Easypaisa has reached quite a size in terms of active users, providing multiple transactions. The Easypaisa App is currently one of the largest financial services App in the country and is being looked at as the future of the Bank. In this realm, competition is also increasing. Moreover, since the projected outlook of the Bank indicates absorbing accounting losses, timely yet matching sponsor support through Equity injections is essential.

Equity injection of USD 22mln in Jan’22 and probable injection of USD 20mln in Jul’22 represents the willingness and the ability of the sponsors to support the Bank. Though SBP’s Relief Packages have come handy to the sector in protecting the credit quality of the players during the previous waves, the out-turn of the situation, and its relative impact on the risk profiles of industry players, is yet to unfold in the days to come. Regarding the Covid relief portfolio, TMB management believes that it has taken key steps to recover and has been upfront in recognition of losses by adequately covering the same in the equity funding plan.

The revision in rating represents the challenges that Bank’s business and financial risk profile are facing. These impediments are exhibited in net decline in GLP (which is conscious management decision to focus on quality), increasing infection due to Covid relief portfolio resulting in constrained markup earned and accumulating losses.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com