PACRA Upgrades Entity Ratings of U Microfinance Bank Limited

Lahore, September 16, 2022 (PPI-OT):The ratings reflect the association of U Microfinance Bank Limited (U Bank) with Pakistan Telecommunication Company Limited (PTCL), the country’s leading Information and Communication Technology Service Provider. This affiliation supports the Bank in terms of building a strategic congruence alongside establishing robust systems and controls. U Bank is a fast-growing player in the Microfinance Sector.

The Bank’s ambitious growth strategy encompasses multi-faceted targets focused on achieving growth in the retail banking segment, and developing a digital banking platform. Going forward, the envisaged strategy encompass diversification at segmental, geographical, and product level. A sizeable book of GOP securities (end-June22: PKR 27.7bln) in the investment portfolio assisted in maintaining liquidity.

The Bank’s digital segment is yet to progress a long way to mark its presence in the competitive landscape; the mix is currently small. Almost half of the Bank’s portfolio is gold-backed. Asset quality was impaired, as deferred book to total GLP was significant.

To build a cushion, the Bank has recognized a sizable subjective provision in order to add a further cushion for absorption of expected loan losses. This provides a strong mitigant against potential credit risk. The investment income stream has helped the bank to bolster its profitability through this avenue.

SBP’s recent circular pertaining to further relaxation in recording provisioning expense of NPLs is expected to bring reversal. Sizable enhanced mark-up and non-mark-up income provide comfort. The Bank’s funding needs are primarily fostered through a growing deposit base, coupled with sizable borrowings.

The ratings are constrained by high concentration in deposit base; increased on account of gaining. The strengthening of the equity base over the last few years is a positive. The industry’s few parameters are deteriorating on account of pressured macroeconomic indicators, attributable to the aftermath of the COVID-19 and recent flood situation. The relative impact on the risk profiles of industry players is yet to unfold in the days to come.

The ratings are dependent upon the Bank’s ability to aptly combat the emerging risks under the current scenario in order to keep its business and financial risk profile intact. Stable outlook denotes comfort on business risk and financial risk profile of the bank.

For more information, contact:
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