PACRA Maintains Rating of NRSP Microfinance Bank Limited | Tier II TFC

NRSP was facing challenges, as the majority of the players came under pressure due to multiple factors. Although the problems persist, the bank has travelled a long distance and expects to close the calendar year in a much-improved position compared to last year. NRSP Bank has been serving an increasing number of customers and has cementing its position in the industry with ~6.4% share in the total gross loan portfolio as of Jun'23. The GLP of the bank stood at ~PKR 32bln at the end of Sept'23 compared to (Dec'22 ~ PKR 32.3 bln). The bottom line of the Bank increased drastically, depicting a profit of ~PKR 546mln at the end of Sept'23 compared to a (loss in Sept '22 ~PKR 2,525mln). The Major sponsor, the National Rural Support programme injected ~PKR 1bln in NRSP bank in Feb'23 and promised to invest more with other sponsors, Under that plan Proparco also confirmed the grant of Euro 0.195mln under their technical assistant program.
The equity of the company stood at ~PKR 1.66bln as of Sept'23 compared to ~PKR 92mln at the end of Dec'23, the sudden increase in equity of the bank is due to the injection of equity by the National Rural Support Programme in Feb'23. The Capital Adequacy ratio (CAR) of the bank stood at ~ (-6.5%) at the end of Sept'23 compared to ~(-11.5%) in Jun'23 and ~(-13.2%) at the end of Dec-22. The bank expects to cover a significant gap by the end of this year on the negative side of CAR. The management is projecting to cover the remaining distance from the legal requirement by the end of next year, based on their performance. There is express commitment from key sponsors.
NRSP has paid its 8th installment due on 9th July'23 amounting to ~PKR 48mln and the 9th installment due on 9th Oct'23 amounting to PKR~50mln. The sponsors have reassured their support, both in technical and financial forms, to the Bank historically with an expression of explicit intention from NRSP to provide financial support in the form of capital injection, as and when required. The NRSP (Parent) has given assurance to pay the interest payments (against NRSP | Tier II bond) falling due in CY24. This would provide credit enhancement to support the Tier-II rating.
The ratings depend upon the out-turn of management’s plans to steer the bank's risk profile towards an improved trajectory. Timely sponsor support is crucial. The ratings would also monitor the impact of technological advancement on the operational and risk efficacy of the Bank and reflect the need to oversee the risk profile of the Bank against unavoidable challenges, going forward.

About the Entity
NRSP Microfinance Bank Limited was incorporated as a public limited unlisted Company in October 2008 under Section 32 of the repealed Companies Ordinance, 1984 (now Companies Act2017). National Rural Support Programme (NRSP) is a majority shareholder with a shareholding of ~57%.

About the Instrument
NRSP Bank issued a rated, unsecured, unlisted, unsecured, and subordinated TFC-II in Jul-21 of PKR 770mln to contribute towards the Bank's Tier II Capital. The TFC will rank pari passu with other Tier II instruments and superior to Additional Tier I instruments and common shares. The tenor is 07 years and callable on or after five years with prior approval of SBP. The profit rate is 3MK plus 300bps and is being paid quarterly in arrears on the outstanding principal.