The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Revises Entity Ratings of NRSP Microfinance Bank Limited

Rating Type Entity
(14-Dec-22 )
(29-Apr-22 )
Action Downgrade Maintain
Long Term A- A
Short Term A2 A1
Outlook Negative Negative
Rating Watch Yes Yes

NRSP Bank's asset quality witnessed significant impairment. This was due to multiple factors, chief among them was the impact of Covid-19 and the high inflationary environment amidst a slowdown in the economy and high-interest rates. Only recently, the massive floods took a deep toll. This resulted in the erosion of the bank's capital adequacy ratio, which the bank is required to maintain at 15%. The deferred book to total GLP was sizeable. Further challenges in recovery and markup suspension led to decreased markup earned. Consequently, the bank booked a loss at the net mark-up level at end-Sep-2022 (PKR 907mln). Provisioning impact (PKR 1.7bln) took a further toll. Although the administrative expenses were maintained in the nine months, the red net markup loss after the provision dominated the entire profit and loss account for the period that ended September 30, 2022. The bank booked a loss after tax of PKR 2.5bln for the above-mentioned period. As a result, the equity of the bank reduced from PKR 4.2bln at end-Sep 2021 to PKR 1.7bln at end-Sep 2022. The cash and bank balances have fallen, though there is a slight reduction in borrowings as well. The impact is seen in the reduced deposit base. Holding the deposit base and also liquidity position is highly important. To cover up the losses and improve its CAR, the bank is seeking equity support from the sponsor shareholder: National Rural Support Programme. NRSP Board of Directors, as on May 12, 2022, approved an investment of up to PKR 2bln into the equity of the bank. It was well noted and comfort was drawn from this. The equity injection would help the bank to continue its operations, unabated. There is a high need that the process for the above injection to be harnessed.
The ratings are dependent upon the bank’s ability to steer out of the current challenges while improving the risk profile. The equity base needs to be enhanced while augmenting the CAR. The process of rights issue needs to be carried out on a war footing. Recovery from bad loans is also important. Any non-compliance with the regulatory or contractual obligations would be negative for the ratings.

About the Entity
NRSP Microfinance Bank Limited was incorporated as a public limited unlisted Company in October 2008 under Section 32 of the repealed Companies Ordinance, 1984 (now Companies Act 2017). The Bank obtained a license from SBP on February 18, 2009, to operate nationwide as a microfinance bank under Microfinance Institutions Ordinance, 2001. The Bank was established to mobilize funds for providing microfinance banking and related services to low-income, underserved and marginalized segments of society for mitigating poverty and promoting social welfare through providing access to financial markets at the micro level. National Rural Support Programme (NRSP) is a majority shareholder with a shareholding of ~57%. Other institutional shareholders include International Finance Corporation (IFC), PROPARCO, and Acumen Fund USA.

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.