PACRA Maintains HBL Microfinance Bank’s Tier 2 Capital TFC Rating at ‘A’.

Karachi: The Pakistan Credit Rating Agency Limited (PACRA) has maintained its rating of HBL Microfinance Bank Limited’s (HBL MfB) Tier 2 Capital Term Finance Certificate (TFC) at ‘A’ with a stable outlook. This decision sustains the evaluation from earlier this year, emphasizing the bank’s robust financial profile and the substantial backing it receives from its primary owner, Habib Bank Limited (HBL), which is part of the Aga Khan Fund for Economic Development.

According to The Pakistan Credit Rating Agency Limited, HBL Microfinance Bank Limited continues to assert its position as a leader in the microfinance sector, boasting the largest deposit and loan portfolios. As of the end of September 2024, the bank’s gross advances stood at PKR 94.7 billion, a slight decline from PKR 100.9 billion at the end of December 2023. However, non-performing loans increased to PKR 9.5 billion, compared to PKR 2.7 billion at the close of the previous year, primarily due to a credit crunch in South Punjab and the adoption of IFRS-9 standards, which have resulted in higher provisioning requirements.

The increase in non-performing loans has led to an infection ratio of 10%, up from 3% at the end of 2023. The bank’s management is actively working to address these challenges. The funding structure of the bank is predominantly supported by deposits, with savings and term deposits contributing significantly. By the end of September 2024, the deposit base was recorded at PKR 118.5 billion, down from PKR 128.2 billion at the end of December 2023.

During the first nine months of the calendar year 2024, the Net Interest Margin (NIMR) shrank to PKR 5.5 billion from PKR 7.6 billion in the same period the previous year. The bank also reported a post-tax loss of PKR 4 billion for 9MCY24, in stark contrast to a profit of PKR 782 million in 9MCY23. This loss is attributed to high-cost deposits, increased provisioning charges, and sluggish recoveries in the South Region.

Despite these challenges, the bank’s Capital Adequacy Ratio (CAR) improved to 16.1% by the end of September 2024, up from 15.3% at the end of December 2023, largely due to a substantial capital infusion of PKR 6 billion from its parent company, HBL. The ratings remain contingent on the bank’s ability to navigate emerging risks in the current economic landscape while maintaining its business and financial risk profile.

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