Karachi, May 07, 2019 (PPI-OT): VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings to Pakistan Mortgage Refinance Company Limited (PMRC) of ‘AAA/A-1+’ (Triple A/A-One Plus). Outlook on the assigned ratings is ‘Stable’. The long-term rating of ‘AAA’ indicates highest credit quality; the risk factors are negligible, being only slightly more than for risk-free Government of Pakistan’s (GoP) debt. The short-term rating of ‘A-1+’ signifies highest certainty of timely payment; Short-term liquidity, including internal operating factors and /or access to alternative sources of funds, is outstanding and safety is just below risk free GoP’s short term obligations.
PMRC was established by State Bank of Pakistan (SBP) in 2015 as Pakistan’s first national mortgage refinance institution for provision of long-term funding to both conventional and Islamic Primary Mortgage Lenders (PMLs). The company was granted Business Commencement Certificate by SBP on June 12, 2018. Shareholding structure of the company depicts that around 67.21% stake is vested with 9 PMLs including private and public sector institutions while remaining interest is held by GoP through Ministry of Finance (MoF). Aggregate public sector shareholding is 49%.
The assigned ratings are underpinned by PMRC’s special policy role in promoting and facilitating home ownership and housing finance in the country and close linkages with SBP and GoP as reflected by strong regulatory and government support. Ratings also incorporate PMRC’s low exposure to credit and market risk, strong projected capitalization indicators, satisfactory policy framework, experienced and professional management team and sound risk management controls. Ratings remain dependent on maintaining very low risk profile and achieving financial performance in line with projection. Sensitivity of ratings to credit and market risk while being present is considered low.
Mortgage market in the country has grown at around 30% and 16% during 2017 and 2018, respectively. However, Pakistan’s mortgage to GDP ratio at 0.2% is well below 3.4% in South Asia. While pace of growth in mortgage finance is projected to slow-down given the sharp rise in benchmark rates, low mortgage finance penetration along with significant and growing deficit of housing units in the country should facilitate in increasing housing financing in the country. PMRC is targeting growth through both, existing inventory of housing loans with PMLs and through new loans. Market share in outstanding mortgage portfolio is projected to cross 15% by 2022 from an estimated 5% currently.
PMRC will provide refinancing through conventional and Islamic loans in both, fixed and variable rate modes. During the first six month of operations, PMRC has disbursed Rs. 6.2b in financing with gross refinancing portfolio targeted at Rs. 18.6b by end-2021. Ratings take into account PMRC’s sound credit risk management strategy which entails financing with recourse to PMLs, existence of collection account mechanism for receivables collected by PML in respect of each refinance loan and 25% overcollateralization on Mortgage Loan Portfolio (MLP). Ratings also acknowledge presence of regular monitoring and review procedures for both, PML and MLP. Effective implementation of credit risk management strategy will be an important rating driver. Exposure to market risk is planned to be maintained on the lower side with investments undertaken in short duration securities as per policy.
Ratings also incorporate PMRC’s sound funding profile which draws support from availability of long-term funding from World Bank (WB) relent in local currency by GoP at concessionary rate. The management also plans to raise bonds for funding growth in 2020. Given that fixed-rate refinancing is projected to represent majority of the portfolio, PMRC’s ability to access the capital market for fixed-rate funding in a cost-effective manner would be an important rating consideration. With low risk weight on exposure to PMLs, Capital adequacy ratio of PMRC will remain comfortably above statutory requirement over the rating horizon. Profitability will be driven by healthy spreads over the short-term (given availability of WB loan at concessionary rate) with volumetric growth projected to support profitability as spreads decline with raising of funds through market based borrowings.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Category: General Business News