Press Release

Ratings of ASA Pakistan Limited placed on ‘Rating Watch-Negative’ status

Karachi, April 30, 2020: VIS Credit Rating Company Limited has maintained the entity ratings of ASA Pakistan Limited (ASA Pakistan) at ‘BBB+/A-3’ (Triple B Plus /A-Three). The assigned ratings have been placed on ‘Rating Watch-Negative’ status. The long term rating of ‘BBB+’ signifies adequate credit quality with reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short term rating of ‘A-3’ depicts satisfactory liquidity and other protection factors which qualify entities / issues as investment grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. Previous rating action was announced on April 30, 2019.

Assigned ratings of ASA Pakistan continue to derive strength from sponsor support received from ASA International Holding in the form of both technical and financial assistance. ASA Pakistan completed the first step for obtaining MFB license; the company received a No Objection Certificate (NOC) by State Bank of Pakistan (SBP) in ongoing year. Moreover, as per management, all requirements specified by the regulator in regard to conversion have been complied with. Ratings are dependent upon conversion of the institution into a regulated entity in the ongoing year; which may be delayed due to ongoing Covid-19 outbreak.

In our latest review, we have noted that ASA Pakistan’s operational performance has been affected by the rising credit impairment across the industry, with infection levels depicting notable increase. Given the ongoing (Covid-19) lockdown, the rising trend in credit impairment is likely to continue. On the liabilities side, gross loans remained largely funded by both local and foreign denominated borrowings mobilized by the company. The regulatory deferment of a portion of repayments against advances would impact the liquidity position of the bank, going forward, which to an extent may be mitigated by deferment of borrowing repayments; nevertheless, liquid assets in relation to borrowings remain low thus putting stress on liquidity indicators. Moreover, asset quality indictors may further weaken. Despite higher finance cost, profitability levels improved on the back of net exchange gain, volumetric growth in advances and maintained administrative expenses. The impact of curtailment of economic activity for a certain period of time and lower lending rate scenario may cause margin compression, thereby impacting the profitability of the company.

The revision in outlook takes into account prevailing uncertainty in overall microfinance sector due to coronavirus outbreak, prolonged lockdown and globally suppressed economic growth. Status of the assigned rating is therefore uncertain as an event of deviation from expected trend has occurred; additional information will be necessary to take any further rating action, warranting a ‘Rating-Watch Negative’ status. Improvement in asset quality while sustaining cost efficiencies, along with successful transformation to MFB would be important rating drivers going forward.

For further information on this rating announcement, please contact the undersigned (Ext: 306) or Mr. Muhammad Ibad (Ext: 205) at 35311861-70 or fax to 35311872-3.

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Microfinance 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 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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