The Pakistan Credit Rating Agency Limited
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Muhammad Noor Ul Haq

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PACRA Maintains Entity Ratings of First Punjab Modaraba

Rating Type Entity
(24-Sep-21 )
(25-Sep-20 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect the strong patronage of the Modaraba; The Bank of Punjab (BoP) (Rated AA+ by PACRA). The topline decreased on account of decline in interest rates, however, the impact of said decline was in turn subsided by considerable fall in finance costs, providing comfort to the bottom-line for the period. In this regard, recovery of NPLs also helped. In order to mitigate the effect of accumulated losses, First Punjab Modaraba (FPM) intends to enhance its equity base through further injection of equity from the sponsor. The plan is at an advanced stage. The company has managed to sustain its earning assets, mainly lending book wherein vehicle financing contributed majorly. The key sponsor is committed for its support in the form of a sustainable funding base. The management is in the process of generating new avenues of business. A comprehensive business plan is under development, which shall be approved by BoP’s board. The lending stagnated during COVID-19, as transportation sector, a niche of FPM, was severely impacted. From July 20 onwards, transportation sector picked up the pace which led to spiked lending levels in the quarter ending Sep’20. However, after the said quarter, lending levels of FPM showed the normal trend as that was before July’20, regardless of stability in the transport sector. The management’s efforts to sustain and ultimately improve its business profile is expected to yield sustainable results; however, materialization is contingent upon the timely implementation. Support from sponsor is vital.
The ratings are dependent on relative positioning of the Modaraba in the sector and sustained asset quality of the new portfolio: achieving bottom line profitability is important. Meanwhile, any weakening in the financial profile or support from the sponsor could have negative implications.

About the Entity
First Punjab Modaraba (FPM), established in 1992, is a perpetual, multipurpose Modaraba, is listed on Pakistan Stock Exchange. Modaraba is engaged in financing through Ijarah, Morabaha and Diminishing Musharaka. Punjab Modaraba Services (Pvt.) Limited (PMSL), the wholly owned subsidiary of The Bank of Punjab (BoP), is the management company of FPM. PMSL has ~39% stake in the modaraba.
The Board of Directors comprises of seven members including CEO of FPM. Majority represent the Bank of Punjab along with two independent members. Mr. Aamir Malik, CEO of Modaraba, has over 28 years of banking experience in different management positions, is supported by an adequate 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.