Press Release

Rating of Khushhali Microfinance Bank Limited Placed on ‘Rating Watch-Developing’ Status

Karachi, April 29, 2020: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Khushhali Microfinance Bank Limited (KMBL) at ‘A+/A-1’ (Single A Plus/A-One). 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, liquidity factors are excellent and supported by good fundamental protection factors. Moreover, VIS has also maintained rating of ‘A’ (Single A) assigned to the TFC-I (Tier-II debt instrument) of KMBL. Upon submission of legal documentation, VIS has also finalized the rating of ‘A’ (Single A) assigned to TFC-II (Tier-II debt instrument) of the bank. Given the uncertain ongoing scenario concerning Coronavirus pandemic and impact of lockdown, status of the assigned ratings is uncertain, warranting a ‘Rating Watch-Developing’ status. The previous rating action was announced on April 30, 2019.

KMBL is the leading provider of microcredit services in the microfinance sector in Pakistan, having largest market share in terms of deposit and loan portfolio amongst microfinance banks. The assigned ratings take into account strong sponsor profile and implicit support of shareholders as and when required. Three major shareholders are considering the aggregate stake sale of 58.6% to a consortium of renowned strategic investors; the divestment process in underway and is expected to be completed by end-FY20. While the financial and experience profile of overall sponsor base is expected to remain intact, VIS will review the same upon completion of the divestment process. The ratings also incorporate growth in microcredit portfolio, expanding geographic outreach and enhancing focus on digitization to remain competitive. The ratings also factor in largely maintained Capital Adequacy Ratio (CAR) on back of profit retention and issuance of Tier-II capital, despite considerable increase in risk weighted assets.

Growth in microcredit portfolio was driven by higher disbursement, with increasing focus on higher ticket loans, progression of existing clients towards successive loan cycle and higher number of active borrowers, the same was supported by network expansion. The bank introduced number of products during the outgoing year with high upper limit, which is expected to enhance market penetration and customer base. Around four-fifth of the microcredit portfolio remained concentrated in agriculture sector (crop & livestock). Meanwhile, portfolio quality of the bank witnessed deterioration during FY19 owing to economic slowdown and decline in wheat and corn crop yields due to untimely and heavy rains. The same was further fueled by aggressive growth strategies by industry players, resulting in geographical concentration and over indebtedness of customers amid multiple lending by microfinance banks. Resultantly, despite increase in core income, higher incidence of non-performing loans (NPLs) has resulted in decline in overall profitability of the bank. However, despite decline in profitability, the bank reported highest net profit in the sector. Moreover, other performance indicators of the bank including return on assets and equity, and operational self-sufficiency also remained one of highest in the sector. The management has taken various initiatives to curtail fresh infection and improve recovery against bad loans.

Decrease in liquid assets in relation to total deposits & borrowings was noted. The deferment of a portion of repayments against advances, in accordance with the SBP guidelines, may impact liquidity position of the bank, going forward. According to the management, about two third of deposits are contract based having maturity of more than one year, that provides cushion in an unforeseen event of deposit withdrawals. The ratings are dependent on improvement in key performance indicators and continued sponsors support.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz 042-35723411-13 (Ext. 8004) and/or the undersigned at 021-35311861-66 (Ext. 306) or email at

Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Corporates (May 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 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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