Press Release

VIS Maintains Ratings of The First MicroFinanceBank Limited

Karachi, April 30, 2020: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings assigned to The First MicroFinanceBank Limited (FMFB) 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. Ratings have been placed on ‘Rating Watch - Developing’ status in the current scenario concerning Coronavirus pandemic and impact of lockdown. The previous rating action was announced on March 25, 2019.

The assigned ratings take into account strength of the sponsor and implicit support in maintaining viability of the bank. A change in shareholding structure was observed during the period under review as International Finance Corporation sold its shares (8%) to Aga Khan Agency for Microfinance. The assigned ratings take into account growth in microcredit portfolio, though at a slower pace, driven largely by growing footprint, number of disbursements and average loan size. Asset quality indicators were under pressure during FY19 due to impact of climatic volatility on yield and overall production of key crops, leading to considerable increase in infection ratios and significant decline in profitability of the bank. Moreover, the elevated indebtedness of borrowers by increasing geographic concentration and aggressive portfolio growth policies of the industry players also contributed towards overall weakness in asset quality. The pressure on asset quality is expected to remain in FY20; the management has however taken various initiatives to curtail infection level by cutting-back on new disbursements in high-risk locations along with the reduction in limits.

The bank’s operational self-sufficiency stood close to minimum level of 1x mainly on account slightly lower markup spread amid higher cost of funds, increase in loan loss provisions and operational costs during FY19. Liquid assets to deposit & borrowings ratio has declined on a timeline basis; stickiness of some large deposits provide comfort to a certain extent. Despite augmentation of equity, net NPLs to tier-1 equity ratio was recorded higher. Capital Adequacy Ratio (CAR) of the bank decreased by end-FY19, that is now slightly above the minimum regulatory requirement, owing to significant increase in risk-weighted assets.

FMFB has received an in-principle approval from the State Bank of Pakistan (SBP) for issuance of secured, subordinated term finance facility of Rs. 2b from its parent company, Habib Bank Limited, for a tenor of 8 years with an option to make bullet repayment after the expiry of 5 years. The facility will not only contribute towards the bank’s supplementary/tier-II capital for CAR but will also support the liquidity profile in a scenario of deferment of a major portion of current-year advances repayments as per the SBP’s COVID-19 relief program. Issuance of the said facility within given timeline is considered important from ratings perspective. Going forward, the ratings are dependent on improvement in key performance indicators.

During FY19, FMFB commercially rolled out an in-house developed Loan Origination System (LOS) to more than 35 branches; a branchless banking system, also developed in-house, was piloted during the year and is expected to be commercially launched in 2020. Risk management, Compliance, KYC/AML remains pivotal for the Bank to achieve operational excellence.

For further information on this rating announcement, please contact Syed Fahim Haider at 042-35723411-13 (Ext: 8006) or the undersigned at 021-35311861-70 (Ext. 201) or email at

Faryal Faheem Ahmed
Deputy CEO

Applicable rating criterion: Micro Finance Banks (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 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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