The Pakistan Credit Rating Agency Limited
Press Release


Sehar Fatima

Applicable Criteria

Related Research

This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Upgrades Entity Ratings of U Microfinance Bank Limited

Rating Type Entity
(16-Sep-22 )
(18-Aug-21 )
Action Upgrade Maintain
Long Term A+ A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - Yes

The ratings reflect the association of U Microfinance Bank Limited (U Bank) with Pakistan Telecommunication Company Limited (PTCL), the country's leading Information and Communication Technology Service Provider. This affiliation supports the Bank in terms of building a strategic congruence alongside establishing robust systems and controls. U Bank is a fast-growing player in the Microfinance Sector. The Bank's ambitious growth strategy encompasses multi-faceted targets focused on achieving growth in the retail banking segment, and developing a digital banking platform. Going forward, the envisaged strategy encompass diversification at segmental, geographical, and product level. A sizeable book of GOP securities (end-June22: PKR 27.7bln) in the investment portfolio assisted in maintaining liquidity. The Bank's digital segment is yet to progress a long way to mark its presence in the competitive landscape; the mix is currently small. Almost half of the Bank’s portfolio is gold-backed. Asset quality was impaired, as deferred book to total GLP was significant. To build a cushion, the Bank has recognized a sizable subjective provision in order to add a further cushion for absorption of expected loan losses. This provides a strong mitigant against potential credit risk. The investment income stream has helped the bank to bolster its profitability through this avenue. SBP’s recent circular pertaining to further relaxation in recording provisioning expense of NPLs is expected to bring reversal. Sizable enhanced markup and non-markup income provide comfort. The Bank's funding needs are primarily fostered through a growing deposit base, coupled with sizable borrowings. The ratings are constrained by high concentration in deposit base; increased on account of gaining. The strengthening of the equity base over the last few years is a positive. The industry's few parameters are deteriorating on account of pressured macroeconomic indicators, attributable to the aftermath of the COVID-19 and recent flood situation. The relative impact on the risk profiles of industry players is yet to unfold in the days to come.
The ratings are dependent upon the Bank’s ability to aptly combat the emerging risks under the current scenario in order to keep its business and financial risk profile intact. Stable outlook denotes comfort on business risk and financial risk profile of the bank.

About the Entity
In 2012, PTCL acquired 100% shareholding of Rozgar Microfinance Bank Ltd, which was established in 2003, as a district-wide microfinance bank. Henceforth, its name was changed to U Microfinance Bank Limited. PTCL itself is co-owned by the Government of Pakistan (62%) and Etisalat International Pakistan (LLC) (26%) (Etisalat), a state-owned Telecom Corporation of UAE. Management control of PTCL rests with Etisalat. The Board of Directors of the Bank consists of eight directors, comprising representatives of PTCL, along with two independent directors. Mr. Burak Sevilengul, the Chairman of the Board, has over 24 years of experience. Mr. Kabeer Naqvi, the President and CEO, has over 20 years of professional experience to his name and has been with the bank, since Sep’15.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.