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VIS Credit Rating Company Reaffirms Entity Ratings of U Microfinance Bank Limited

Karachi, May 06, 2022 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of U Microfinance Bank Limited (UMBL) at ‘A+/A-1’ (Single A Plus/A-One). Long-term rating of ‘A+’ denotes good credit quality with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. Short-term rating of ‘A-1’ indicates high certainty of timely payment with excellent liquidity factors that are supported by good fundamental protection factors. Risk factors are considered to be minor. The rating of subordinated Tier-2 TFC (Rs. 600m) has also been reaffirmed at A (Single A). The medium to long-term rating of ‘A’ denotes good credit quality, with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on April 29, 2021.

Ratings reflect strong sponsor profile and consistent demonstrated support of PTCL which has been assigned an entity rating of ‘AAA/A-1+’ (Triple A/A-One Plus) by VIS and is co-owned by the Government of Pakistan and Etisalat International Pakistan (LLC). The implicit support from the sponsor is evident from the conversion of Tier-II Subordinated Debt amounting to Rs. 1.8b over the last two years along with recent conversion of Rs.1.0b into preference shares aimed to add further depth to capitalization indicators of the Bank.

The assigned ratings continue to derive strength from the Bank’s business strategy to enhance its focus towards secured portfolio; a significant part of UMBL’s micro-credit portfolio is gold-backed entailing lower credit risk than the comparatively larger unsecured portfolio of the peer group. The ratings further reflect growth in business volumes and strengthening of liquidity profile. Although increasing in line with last year’s projections, infection ratios of the bank compare favourably to peers in the industry.

With a shift in asset mix towards investments in T-Bills, PIBs, and mutual funds that invest in fixed income government securities, liquid assets in relation to deposits and borrowings improved in the outgoing year. The bank maintained capitalization buffers well above the regulatory requirements. A further addition of Rs. 1.0b to the equity base is expected by June’22 in the form of a Tier-1 instrument, which is likely to help achieve the projected growth while also maintaining the capital buffers for the assigned ratings. Going forward, ratings are dependent on achievement of projected growth plans while improving asset quality indicators, strengthening deposit profile and retaining buffer over regulatory capital requirement.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/