The Pakistan Credit Rating Agency Limited
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Jibran Cheema

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PACRA Maintains Entity Ratings of NRSP Microfinance Bank Limited | Outlook Negative | Rating Watch

Rating Type Entity
(27-Apr-20 )
(28-Oct-19 )
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Negative Negative
Rating Watch Yes -

The ratings incorporate the bank's placement in the Microfinance Sector, as witnessed from its ~9% share in the gross loan portfolio (GLP) and ~10% share in the deposits of the industry in CY19. The design of the lending book keeps the concentration high wherein a considerable portion is dedicated to crop-linked loans, particularly to sugarcane crops; this, coupled with volatile system indicators, has significantly impacted the bank's credit quality in CY19. This resulted in a considerable rise in infection ratio and a sizable quantum of write-offs, particularly in the last quarter of CY19, in order to cleanse the loan book. Following a series of negative bottomline quarters, the bank made profits in the last quarter of CY19. Management expects to continue the same trend in CY20. Considering the constrained market conditions and the bank’s internal factors, the management's strategic focus inclines towards consolidating the bank's position in the short horizon, including exercising a cautious lending approach and building gradual product diversity. Additionally, prudent management perspective is necessitated to keep the bank's capital adequacy ratio (CAR) in check; augmentation of the same is imminently desirable. Moreover, cognizance towards liquidity profile is imperative. The management is actively pursuing actions to address capital and liquidity concerns, some of which are at an advanced stage. Under the current scenario, the nationwide lockdown due to the global pandemic - Covid-19, is certain to cast a significant impact on the whole microfinance industry. The key risks culminating from the current crisis are (i) loss of recovery (ii) halt in fresh disbursement and (iii) probable liquidity stretch. Though SBP’s Relief Packages have come handy to the sector in protecting the credit quality of the players, the out-turn of the situation, and its relative impact on the risk profiles of industry players, is yet to unfold in the days to come. The ratings, however, take comfort from the association of NRSP Microfinance Bank with the National Rural Support Programme, the major shareholder, and with the three foreign development organizations - IFC, Acumen, and KfW. The major sponsor has expressed explicit intention to support the bank in case there is a need for capital injection.
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. The ratings are also placed under “Watch” which reflects the need to oversee the risk profile of the bank against unavoidable challenges. Meanwhile, any further contraction in net liquidity book or erosion in CAR would have a negative impact on the ratings.

About the Entity
NRSP Microfinance Bank Limited commenced operations in March 2011, as a national level microfinance bank. The bank is majority (~52%) owned by the National Rural Support Program. Kreditanstalt für Wiederaufbau (KfW), International Finance Corporation (IFC), and Acumen each have ~16% shareholding in the bank. With a network of 154 branches, the bank has its head office in Bahawalpur, a key district in Southern Punjab; placing it closer to its target market.

The bank's Board of Directors comprises; 3 representatives from NRSP, 1 nominee each from IFC, KfW, and Acumen, 2 independent directors and the CEO - Mr. Zahoor Hussain Khan, an experienced microfinance banker. He is assisted by a qualified management team.

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.