PACRA Maintains the Entity Ratings of Telenor Microfinance Bank Limited

Telenor MFB ('the Bank') is associated with robust sponsors - Telenor Group (~55%) and the AliPay (Hong Kong) Holding Limited (~45%). Telenor MFB is a mid-tier player in Pakistan’s microfinance sector with a 4.5% share in the total gross loan portfolio as of end-Dec23. The bank's business profile emanates from its nationwide network of more than 213,000 registered branchless banking agents, serving over 13 million customers every month. The bank is in the process of transitioning from a microfinance bank to a digital retail bank. In this regard, certain milestones achieved as the Bank has been granted a NOC and an in-principal approval from SBP for a digital banking license, the only operational bank in Pakistan to achieve this so far, this is attributable to the largest digital footprint of the bank in the country through EasyPaisa, Pakistan’s first mobile banking platform launched in 2009. The conversion shall entail the grant of the Digital Retail Bank license which shall replace the existing Microfinance Bank license. Organogram has been redesigned with verticals of payment solutions, productive lending, and consumptive lending. At end-Dec23, the net advances of the bank increased by 56% to stand at PKR 17.6bln (end-Dec22: PKR 11.3bln). The NPLs of the bank increased to PKR 1.1bln (end-Dec22: PKR 736mln). Consequently, the infection ratio of the bank inched down to 6.2% (end-Dec22: 6.4%). During the period, the bank successfully disbursed a significant amount of PKR 21.5bln (end-Dec22: PKR 4bln) through digital lending. The deposit base of the bank increased to stand at PKR 50,938mln (end-Dec22: PKR 46,598mln) tilted toward demand deposits with a concentration of ~83%. The average cost of the deposit base of the bank stands at 1.8%, one of the lowest in the industry. During CY23, the NIMR of the bank strengthened by 90% to stand at PKR 12.7bln (CY22: PKR 6.7bln) with a major contribution of income from core banking operations. The fee and commission income enhanced to PKR 12.9bln (CY22: PKR 6.5bln) with a major concentration of income from branchless banking. Subsequently, the Bank reported a net profit of PKR 502mln (CY22: Loss of PKR 7,092mln). At end-Dec23, the CAR of the bank remained the strongest in the industry clocked in at 21.9% (end-Dec22: 19%) owing to a successive capital injection from the sponsors in the hour of need. The management has undertaken a redesign of the business model, balancing the secured and unsecured (EMI) portfolio as per market dynamics and growth potential. The digital strategy will be a key driver in the execution of the model, an essential change in the character of the bank. Hence, the rating watch is placed to capture the transition of the bank.
The maintenance in rating represents the bank's plan for growth is in place and the business profile has demonstrated improvement in CY23. The sustenance and growth of critical parameters are projected to flow in quarters to come. The bank’s successful completion of the transition from a microfinance bank to a digital retail bank will impact the ratings accordingly.

About the Entity
Telenor Microfinance Bank Limited commenced operations in September 2005 and currently operates with a nationwide network of 48 branches, with its head office in Karachi. Overall control of the bank vests with eight members of the Board of Directors. Currently, four directors, including the Chairman - Mr. Irfan Wahab, represent the Telenor Group. Likewise, Ant Financial is represented by two directors, while two directors on the board are independent. In July 2023. Mr. Kashif Ahmed took charge as the Acting President/CEO of the bank. He carries with him over 2.5 decades of experience in the banking industry. Mr. Kashif joined TMBL in July 2022 as the Chief Compliance Officer of the bank and since then he has been catering the role as well.