Press Release

JCR-VIS Reaffirms Entity Ratings of Khushhali Microfinance Bank Limited

Karachi, April 28, 2017: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Khushhali Microfinance Bank Limited (KMBL) at ‘A+/A-1’ (Single A Plus/A-One). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on April 29, 2016.

The ratings of KMBL take into account strong sponsors’ profile including one of the top tier commercial banks in the country and majority foreign shareholding. The ratings also incorporate KBML’s leading position in the microfinance industry; the bank is a market leader in terms of total gross loan portfolio booked by microfinance sector.

The bank posted healthy growth in micro-credit portfolio during 2016. While loan book remains tilted towards agricultural lending, the bank is gradually building a portfolio of Micro, Small and Medium Enterprises (MSME) to mitigate concentration risk. Moreover, the management has recently introduced house improvement loans in order to diversify sectoral exposure. The bank also plans to introduce Islamic finance product in due course with the aim of serving relatively untapped market segment. Going forward, risk addressed product innovation will play a pivotal role in maintaining a competitive edge in an increasingly challenging operating environment.

Given higher loan portfolio, asset quality indicators improved in terms of gross, net and incremental infection despite considerable amount of fresh infection witnessed during the outgoing year. According to the management, fresh infection mainly emanated from one product, which was halted during 4Q15. In order to sustain its market share in rapidly growing microfinance sector, the bank requires to remain cautious that its asset quality is not compromised.

Deposit base of KMBL also witnessed sizeable increase on timeline basis. Given high concentration in deposit profile, liquid assets as a proportion of deposit and borrowings have remained low as resources were channeled towards lending activities. However, the bank has access to commercial funding sources by negotiating additional lines with local and foreign institutions which can be utilized to plug in any funding gap.

The bank’s profitability indicators exhibited considerable improvement mainly on the back of expansion in business volumes. Retention of sizeable profits helped the bank in largely maintaining capital adequacy ratio. Meanwhile, KMBL has recently completed selection process of its new core banking system of international repute; the implementation process is expected to be initiated soon.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-71 or Mr. Maimoon Rasheed at 042-35723411 or fax to 021-35311873.

Javed Callea

Applicable Rating Criteria: Micro-Finance Banks (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2017 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited