Press Release

Ratings of U Microfinance Bank Limited

Karachi, April 28, 2017: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of U Microfinance Bank Limited (UMBL) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. The previous entity rating action was announced on April 28, 2016.

The assigned ratings to UMBL reflect its association with a strong sponsor, Pakistan Telecommunication Company Limited (PTCL). Under a revised business strategy, the institution shifted focus towards conventional microfinance operations with micro credit portfolio growing six fold during FY16 along with expansion in the bank’s geographical footprint; further growth has been noted during the ongoing year. Advances portfolio reflects concentration with high proportion of products following bullet repayment structure. Given the rapid growth in loan book, and the fact that portfolio is almost entirely based on bullet repayment, quality of fresh lending in the portfolio will become evident as the loan cycle matures.

Deposit base depicted significant growth during the outgoing year. Deposit mix witnessed less than desirable changes with increasing proportion of term deposit leading to higher cost of deposit. Moreover, deposit profile of the bank reflects high concentration. Till the time granularity is achieved, the bank may need to maintain a larger liquidity cushion on the balance sheet to mitigate associated risk.

The management is projecting growth in equity base in coming years based on retention of profits. With recent issuance of Tier-II capital, the room for growth in the Capital Adequacy Ratio has increased.

With significant growth in earning assets on account of higher advances portfolio, income from mark-up bearing assets increased. Resultantly, improvement was also noted in profitability related indicators. Ability to maintain portfolio quality indicators within satisfactory level will remain important for realization of projected profitability targets.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 (Ext: 234) or Mr. Waqas Munir, FRM at 042-35723411-13 (Ext: 8010).

Javed Callea

Applicable Rating Criteria: Microfinance 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