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VIS Maintains Rating of FINCA Microfinance Bank Limited with ‘Negative’ Outlook

Karachi, May 06, 2022 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained the entity rating of FINCA Microfinance Bank Limited (FINCA MFB) at ‘A/A-1’ (Single A/A-One) while outlook on the assigned ratings has been revised from ‘Rating Watch-Developing’ to ‘Negative’. The medium to long-term rating of ‘A’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, excellent liquidity factors and supported by good fundamental protection factors. The previous rating action was announced on April 30, 2021.

The ratings assigned to FINCA MFB incorporate association of the bank with FINCA Impact Finance., a global microfinance organization operating in 20 subsidiaries, including Pakistan. Majority shareholding (86.4%) of the bank is vested with FINCA Microfinance Cooperatief U.A. FINCA MFB continues to receive support from its parent through transfer of technical expertise emanating from FINCA’s global experience.

The overall performance indicators of the bank have remained under pressure mainly on account of impairment in loan book. Decline in markup income primarily emanating from contraction in microcredit portfolio along with sizeable provisioning charge have depressed the profitability profile of the bank; resultantly, the bank incurred sizable losses in the outgoing year. Consequently, equity eroded and CAR reached the minimum regulatory threshold by end-Dec’ 21. However, the latest revision in prudential regulations pertaining to provisioning coverage and write-offs of certain lending products have provided a breather for the sector.

Accounting for the same, the bank booked profit in 1QFY22 while CAR showed slight improvement. In order to avoid potential breach of the regulatory threshold of CAR as growth momentum in lending is pursued, the bank is actively working to raise capital. As per management, equity injection is expected by end-July’ 22. VIS will continue to monitor the bank’s CAR while timely injection of fresh equity and positive trend in performance indicators are imperative to ease pressure off ratings, going forward. Meanwhile, the outlook on the assigned ratings has been revised in view of uncertainty pertaining to timely achievement of capital injection plan. An interim review by VIS will reflect any advancement related to this matter.

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/