The Pakistan Credit Rating Agency Limited
Press Release


Muhammad Azmat Shaheen

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 Updates the Rating of Khushali Microfinance Bank Limited | PPTFC | Tier I TFC | RW & Negative Outlook

Rating Type Debt Instrument
(14-Dec-22 )
(07-Sep-22 )
Action Maintain Initial
Long Term A- A-
Short Term - -
Outlook Negative Stable
Rating Watch Yes -

Amidst Covid-19 impact, the Bank’s GLP witnessed a declining trend. Asset quality was impaired significantly, as the deferred book to total GLP was sizeable. Furthermore, considering the devastation of the massive flood, since Jul'22 the NPLs of the bank are expected to increase significantly, due to which the profitability of the Bank came under pressure. This has resulted in the erosion of the Bank's Capital Adequacy Ratio, which the Bank is required to maintain at 15%. The Bank to supplement its CAR, issued Tier-II and Tier-I TFCs. Apart from this the Bank is also seeking equity support from the sponsors in proportion to their existing shareholding amongst them. The approval of the equity injection is sought from its regulator. The bank management represented that, based on this communication, they also engaged with their regulator, to allow payment, falling due, on the said TFCs, as profit. The terms of the TFCs require that, as per the Lock in Clause, neither profit nor principal, will be payable, if such payments will result in a shortfall in the bank's MCR/CAR or cause an increase in the shortfall. These approvals are requisite for the repayment of the profit payment, given the aforementioned circumstances. Timing is crucial to help the Bank remain current on its financial obligation to the bondholders. As challenges in recovery and markup suspension would arise. Management’s commitment to recouping the asset health and consolidating the Bank's position within the stipulated time is an acute necessity. However, sponsor support through equity injections is essential.
The ratings are dependent upon the out-turn of management’s plans to steer the risk profile of the bank towards an improved trajectory. Timely sponsor support is imperative. 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
Khushhali Microfinance Bank Limited (or "KMBL" or the "Bank") (previously Khushhali Bank Limited) incorporated in 2000 with proclamation of Khushhali Ordinance by Government of Pakistan. Subsequently, it was transformed into a public limited company in 2008. With its headquarters based in Islamabad and a total network of 240 footprint across Pakistan, Khushhali Microfinance Bank (KMBL) operates under the supervision of the State Bank of Pakistan (SBP). The Bank is owned by United Bank Limited (30%), Rural Impulse Fund (24%), Responsibility Global MF (20%), Shore cap II Limited (14%), ASN-NOVIB (10%) and Bank AL-Habib (2%). The Bank is governed by eight members Board and Chaired by Mr. Ameer Karachiwalla. With over 30 years of experience, Mr. Aameer is a Chartered Accountant from the Institute of Chartered Accountants of England & Wales.

About the Instrument
KMBL issued Rated, Privately Placed Listed/ DSLR, Unsecured, Subordinated, Tier I Term Finance Certificates (TFC) of up to PKR 1,500mln to contribute towards the bank’s Tier I capital for complying with the Capital Adequacy Ratio (CAR) requirement prescribed by the SBP for Microfinance Banks. The instrument is perpetual. However, call option exists. The profit will be payable semi-annually, with the rate of 6MK+4%. The instrument is subordinated to the payment of principal and profit to all other claims except common shares.

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.