Press Release

VIS Maintains Entity Ratings of Advans Pakistan Microfinance Bank Limited

Karachi, April 28, 2020: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Advans Pakistan Microfinance Bank Limited (APMBL) at ‘BBB+/A-3’ (Triple B Plus /A-Three). The assigned ratings have been placed on ‘Rating Watch-Developing’ status. The long term rating of ‘BBB+’ signifies adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short term rating of ‘A-3’ indicates satisfactory liquidity and other protection factors qualify entities/issues as to investment grade. The previous rating action was announced on April 26, 2019.

APMBL is a small-sized microfinance bank, holding a province-specific license for operating within Sindh. There has been a change in shareholding of the bank, as Netherland Finance Company (FMO) has divested its 25% stake in the bank and Advans SA Sicar (Advans SA) now holds 100% shareholding of the bank. The assigned ratings of APMBL continue to incorporate implicit support from sponsor, in addition drawing comfort from sound profile and experience of Advans SA in microfinance institutions in several countries.

In our latest review, we have noted that APMBL’s operational performance has been affected by the rising credit impairment across the industry. Even though the bank has made all required regulatory provisions, the provisioning coverage has reduced to 54%, which is on the lower side. Given the ongoing (Covid-19) lockdown, the rising trend in credit impairment is likely to continue, meaning the provisioning burden is likely to remain high. On the liability side, despite achieving strong growth in deposit base, the liquidity risk is deemed to be higher on timeline basis, given reduced granularity of deposits and much higher tilt towards fixed deposits. Cognizant of this, liquidity retention was increased as a result of which liquid assets to deposits & borrowings were higher. In addition, the expected slowdown in credit operations, wherein run offs are expected to exceed new disbursements, are expected to support liquidity buffers in the short term. Liquidity profile is further supported by availability of emergency credit line from the parent company.

Subsequent to posting losses for several years, APMBL achieved its pre-tax breakeven in 2019, on the back of volumetric growth in markup bearing assets and improvement in spreads. The bank’s Operational Self Sufficiency (OSS) improved, albeit remained a little below 100%, indicating that core expenses still outstripped core revenues. Nevertheless, a small operational pre-tax profit of Rs. 0.4m was achieved on the back of reversal of contractual payment to the parent company of Rs. 73.8m, in lieu of technical service fee. Given strong growth (35%) in risk-weighted assets, the capital adequacy of the bank dropped, albeit still compares favorably to peers. As of Dec’19, the bank’s net equity stood a little over the regulatory requirement of Rs. 500m. Even though CAR remains comfortably above the minimum CAR requirement of 15%, the proximity to minimum equity floor is a concern. Cognizant of this, the parent company has made an equity injection of Rs. 50m into the bank in Q1’2020.

The revision in the rating outlook reflects prevailing macroeconomic uncertainty due to coronavirus outbreak, prolonged lockdown, overall contraction in demand and challenging economic environment. Accordingly, status of the assigned ratings is therefore uncertain as an event of deviation from the expected trend has occurred; additional information is necessary to take any further rating action, warranting a ‘Rating Watch-Developing’ status. VIS will continue to closely monitor and will accordingly take action to resolve the outlook status.

For further information on this rating announcement, please contact please contact Arsal Ayub (Ext: 212) or the undersigned (Ext: 306) at 021-35311861-71 or email at

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Microfinance Institutions (June 2019)

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 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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