Karachi, June 14, 2016: JCR-VIS Credit Rating Company Limited (JCR-VIS) has revised the entity ratings of First National Bank Modaraba (FNBM) from ‘A/A-1’ (Single A/A-One) to ‘BBB+/A-3’ (Triple B Plus/A-Three). Outlook on the assigned ratings is ‘Negative’. The previous rating action was announced on July 06, 2015.
Over the last five years, equity base of FNBM has eroded significantly on account of additional provisioning taken by FNBM due to increasing infection and depleting financing portfolio leading to higher losses. In view of this, financial risk profile of the modaraba has weakened while further provisioning against classified accounts may aggravate losses. Ratings continue to draw comfort from FNBM’s association with National Bank of Pakistan (NBP). Sufficient injection of equity along with building up of quality financing portfolio is considered essential for long term sustainability of the modaraba. In this respect a three year plan has been submitted to the regulator. Accumulated losses exceed 50% of the total amount subscribed by the holders of modaraba certificates.
Revenues from core operations remained subdued attributable to reduction in financing portfolio along with high proportion of non performing finances. Operating expenses have been curtailed through staff rationalization and other cost control measures. As per the revised credit policy, average ticket size has been reduced with focus mainly on recovery. Management is expecting cash recovery from certain classified accounts while discussions are also underway with NBP to follow up common classified cases.
Overall liquidity profile of the institution draws comfort from the availability of credit lines from NBP. Drawing upon these, the company was able to pay off almost entire amount of outstanding COMs. Borrowings from FIs other than parent are maturing over the next six months. While the company has timely met its obligations to FIs in the past, cash inflows from the performing portfolio are considered critical to timely pay off future debt obligations.
For further information on this rating announcement, please contact the undersigned (Ext: 501) at 92-21-35311861 or Mr. Mohammed Khalid Ali (Ext: 508) at 92-21-35311861 or fax to 92-21-35311873.
Applicable Rating Criteria: Non-Bank Financial Companies (March, 2005) http://jcrvis.com.pk/Images/NBFC.pdf
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