Ratings of The First Microfinance Bank Limited

Karachi, April 30, 2018 (PPI-OT):JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed entity ratings assigned to The First MicrofinanceBank Limited (FMFB) at ‘A+/A-1’ (Single A Plus/A-One). The previous rating action was announced on October 31, 2017. Outlook on the assigned rating is ‘Stable’.

The ratings assigned to FMFB take into account its association with Habib Bank Limited (HBL) – the largest commercial bank in Pakistan – along with Aga Khan Development Network and other international finance institutions. The ratings also derive strength from ongoing improvement in the operating performance exhibited by sustained asset quality indicators, rationalized operating expenses and increased profitability providing positive momentum to bank’s internal capital generation.Moreover, the ratings incorporate bank’s prospective approach towards growth reflected by ongoing initiatives towards enhanced digitalization and strengthening of core functions.

The growth manifested in bank’s microcredit portfolio outpaced growth of microfinance sector, hence market share, in terms of gross loan portfolio, improved by end-FY17. Product suite was enhanced with the introduction of three new products during the outgoing year, with the aim of serving the untapped market segments and reducing product concentration risk. The sectoral portfolio concentration, albeit declined, remained predominated by agri and livestock segments; the management intends to maintain the current mix, going forward. With gradual progression of clients to successive loan cycles, average loan size and average disbursement size increased. Further, the bank has managed to improve its client retention. On a timeline basis, overall asset quality indicators remained one of the lowest among peer microfinance banks; demonstrating modest credit risk emanating from loan portfolio.

Deposits remained the prime source of funding for the bank at end-FY17. FMFB’s deposit base witnessed sizeable growth on a timeline basis primarily on account growth in fixed deposits mainly owing to launch of a TDR product for high net worth individuals. In line with the aforementioned, deposit concentration risk exhibited increase; granularity is, therefore, required with development of broader depositor base.

The bank remains comfortably placed in terms of liquidity indicators, though declined, owing to presence of sizeable proportion of liquid assets, coupled with one of the lowest advances to deposit ratio recorded amongst peers. Commercial launch of 10 digital access channels was completed during the review period. The branchless banking operations are projected to contribute towards deposit base in FY18 onwards.

Growth in total markup bearing assets in line with increased market penetration and expansion in outreach positively reflected into bank’s bottom line. Operating Self Sufficiency was reported higher on the back of considerable increase in core income and rationalization of operating expenses. Retention of profits, in turn, resulted in augmentation of capital base. The bank’s Capital Adequacy Ratio (CAR) remained well above the minimum regulatory requirement, signifying the bank’s capacity to increase its risk weighted assets.

For more information, contact:
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk