Press Release

JCR-VIS Upgrades Entity Ratings of U Microfinance Bank Limited to BBB+/A-2 with Positive Outlook

Karachi, April 30, 2013: JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded the medium to long-term entity rating of U Microfinance Bank Limited (UMBL) (formerly Rozgar Microfinance Bank Limited) from ‘BB+’ (Double B Plus) to ‘BBB+’ (Triple B Plus). Short-term rating of UMBL has also been upgraded from ‘A-3’ (A-Three) to ‘A-2’ (A-Two). The ‘Rating Watch-Developing’ status has been removed. Outlook on the assigned rating is ‘Positive’.

The ratings take into account the positive change in the bank’s sponsor profile. UMBL is now a wholly owned subsidiary of Pakistan Telecommunication Company Limited (PTCL), which is a primary telecom company in Pakistan. PTCL is co-owned by the Government of Pakistan (GoP) and Etisalat International Pakistan (LLC) (Etisalat). The management control of PTCL also rests with the latter. Etisalat is the state owned telecom corporation of UAE. The assigned rating incorporates implicit support from the sponsor.

Previously, the bank’s operations were restricted to a district level. The new sponsor injected Rs. 1 billion into the bank in order to meet the minimum regulatory capital requirement to operate at a nationwide scale. High level of CAR currently provides room to absorb initial setup costs. Moreover, given the equity injection, the amount of liquid reserves currently held on books is sizeable. These will be channelized into lending activities over time. Efficacy of policy framework in place will be tested once lending operations pick pace.

To widen the scope of operations, business strategy of the bank was transformed and the same has been approved by the regulatory authority. The bank plans to focus primarily on promoting a wide array of branchless banking services. In this regard, pilot test is under progress while full-fledged branchless banking services are expected to commence shortly. The vast agent network of PTCL and its wholly owned cellular company - Pakistan Telecommunication Mobile Limited - is expected to provide impetus and synergic benefits to the bank in tapping mobile banking customers. The funding strategy is also primarily reliant on generating deposits from branchless banking operations.

UMBL has deployed SAP based Sybase-365 as end-to-end branchless banking solution. The software will facilitate country-wide branchless network. Furthermore, to cater to core banking operations, the bank has implemented upgraded version of PIBAS banking solution.

Subsequent to the change in shareholding structure, the Board of Directors has been reconstituted with new members having considerable experience in telecom and financial sector. The newly inducted core management team of the bank comprises professionals well versed with the dynamics of banking and microfinance sectors. The management team has demonstrated commitment in the initial revamping of the organization. Stability in the management team would be tested over time.

With entry of new players in the microfinance and mobile banking segment, competition in the sector is likely to intensify. With a largely unbanked population, there is however significant room for growth. Differentiation in product offering and customer services may allow industry participants to distinctly position themselves over time.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA, at 021-35311861-70 or Mr. Maimoon Rasheed at 042-36610681-84.

Jamal Abbas Zaidi
Deputy CEO

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 2013 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