The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Upgrades Entity Ratings of APNA Microfinance Bank Limited

Rating Type Entity
(28-May-18 )
(10-Nov-17 )
Action Upgrade Maintain
Long Term BBB+ BBB
Short Term A3 A3
Outlook Stable Stable
Rating Watch - -

The ratings capture improved risk profile of the bank. Compliance with all regulatory requirements has been achieved, except capital adequacy; for which a structured plan has been chalked out. Sponsors injected cash, PKR ~400mln in CY17, thereby bridging the gap in Minimum Capital Requirement of SBP. The bank has started producing profits beginning Jan-18. This has been achieved through arresting the attrition in loan portfolio by disbursing fresh loans to quality customers and making stricter follow-ups, while carrying out stringent efforts to recover older NPLs. Resultantly, provision of the bank has reduced by ~85% in 1QCY18. The bank has completely revamped its operations including (i) cleansing of HR base, replacing with experienced and professional staff (ii) re-building the organizational structure incorporating control monitors (iii) overhauling of IT infrastructure and (iv) improving the overall control environment with revisiting policies and procedures , whereby policy manuals are being made and (v) refurbishing the credit mechanism. Going forward, the bank envisages growth by capitalizing on recently strengthened branch network accompanied with recoveries; expected to be translated into much higher profitability. This would enable to supplement capital adequacy. The remaining gap would be filled through fresh capital from sponsors. The rating incorporates Sponsors' commitment, demonstrated by provision of requisite support in the form of funds as well as re-organizing the entire operations.

The rating takes into account management's ability and Sponsors' commitment to turnaround the bank. Compliance with capital adequacy requirement and continued profitability would benefit the rating. At the same time, quality of fresh disbursement as well as recoveries of older NPLs would remain important. Meanwhile, attracting institutional deposits for swift expansion in lending portfolio is imperative.

About the Entity
Apna Microfinance Bank listed on Pakistan Stock Exchange, was established under the Microfinance Institution Ordinance 2001. It started operations in 2005. Headquartered in Lahore, it operates a nationwide network of 116 branches. The overall control of the company vests in eight member Board. Mr. Gulistan Malik was appointed as President and CEO in Aug'17. He is assisted by team of experienced professionals long associated with the company.

United International Group (UIG) controls majority shareholding in the bank through different group companies and individuals. The Company is led by strategic vision of the chairman of the Group, Mian M. A. Shahid, an insurance veteran. The group's presence in insurance is being augmented through takaful operations in both insurance companies. Other ventures include tracking business, farming, and software.

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.