The Pakistan Credit Rating Agency Limited
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Muhammad Usman

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PACRA Maintains Entity Ratings of Telenor Microfinance Bank Limited

Rating Type Entity
(30-Oct-19 )
(30-Apr-19 )
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - Yes

The ratings take comfort from association of Telenor MFB ("the bank") with strong sponsors – Telenor Group (~66%) and the recently inducted Chinese Fintech equity partner - Ant Financial, through its investment arm, AliPay (Hong Kong) Holding Limited (~34%). The group's shareholding is expected to go up by the end of CY19, following injection of the next equity tranche. The bank's business profile emanates from its formidable customer base and sustained relative position. Securing a ~17% share in the MFB's gross loan portfolio (GLP) and ~18% in its gross deposits as at End-1HCY19, the bank continues to hold a prominent position in the MFBs market. With the advent of a new investor on board, the bank's strategic direction has shifted towards expanding Pakistan’s digital ecosystem through tapping the Mobile-Wallet market potential. Significant developments in this regards are underway. Ambition of a sustainable consumer platform rests upon increasing acquisition, retention and transactional activity in branchless banking (BB) wallets. The substantial increase in expenditures (monitored on a periodic frequency) can be mapped onto the growth initiative of the bank. Rising marketing expenses as part of Bank's strategy to increase digital footprint has resulted in increased administrative costs and affected the profitability ratios for the period under review. In 1HCY19, the bank's bottomline closed in red on account of budgeted BB losses and elevated provision expense on the conventional front. This has majorly stemmed from deterioration in asset health, as NPLs recorded in 1HCY19 rose to ~6.5% of GLP. Resultantly, the bank recorded a significant loss of PKR ~3,917mln during 1HCY19 as compared to a net loss of PKR ~329mln in 1HCY18. Comfort is, however, drawn from the injected and expected equity induction by Ant Financial.
The ratings are dependent upon successful materialization of the devised business plan and achieving break-even in BB in the envisaged timeline, without affecting the overall health of the bank. Any deviation from the desired targets would be considered negative. Meanwhile, revival of conventional indicators - particularly credit quality and growth is imperative.

About the Entity
Telenor Microfinance Bank Limited commenced operations in September 2005 and currently operates with a nationwide network of 104 branches, with its head office in Karachi. Telenor Pakistan B.V (Telenor Group) and AliPay (Hong Kong) Holding Limited (Ant Financial) hold ~66% and ~34% shares in the bank respectively. Overall control of the Bank vests with eight members of the Board of Directors. Currently three directors, including Chairman Mr. Irfan Wahab, represent the Telenor Group. Likewise, Ant Financial is represented by three directors, while two directors on the board are independent. In February 2019, Mr. Muhammad Aslam Hayat, carrying over 30 years of professional experience in the industry, assumed the role of acting CEO. On 28th October 2019, Mr. Mudassar Aqil (formerly the Chief Executive of FINCA MFB), took charge as the CEO of the bank.

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.