The Pakistan Credit Rating Agency Limited
Press Release


Muhammad Azmat Shaheen

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PACRA Updates on the Rating of NRSP Microfinance Bank Limited | Tier II TFC | Negative Outlook

Rating Type Debt Instrument
(21-Dec-22 )
(26-Oct-22 )
Action Maintain Maintain
Long Term A- A-
Short Term - -
Outlook Negative Negative
Rating Watch Yes Yes

NRSP Bank's asset quality witnessed significant impairment. This was due to multiple factors, chief amongst them was the impact of Covid-19 and the high inflationary environment amidst a slowdown in the economy and high-interest rates. 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 bank, to supplement, its CAR, issued a Tier II TFC. Apart from this, the bank was seeking equity support from the sponsor shareholder: National Rural Support Programme. NRSP Board of Directors, as on May 12, 2022, approved an investment up to PKR 2bln into the equity of the bank. It was well noted and comfort was drawn from this. The approval for the same was sought by NRSP from its regulator. The terms of the Tier II TFC require that as per the Lock in Clause, neither profit nor principal, will be payable if such payments will result in a shortfall in the bank's MCR/CAR or cause an increase in the shortfall. In light of this clause, a mechanism was worked out whereby the due interest amount fell due on 9th Oct'22 was paid by NRSP, the parent organization. This is treated as a loan to NRSP bank from NRSP and would not be payable unless CAR of NRSP Bank is above the regulatory requirements. The NRSP’s investment of PKR 2bln (PKR 1,930mln as share deposit and PKR 72mln as loan allocation) would remain marked in an escrow account.
The quantum of benefit to the CAR based on the Share Deposit Money may vary now, as against when the process was initiated. At that time, it was forecasted to help achieve a CAR of 17%. These approvals were requisite for the repayment of the profit payment, given the aforementioned circumstances. Furthermore, an assurance has also been provided by NRSP, the parent organization, to pay the upcoming interest amount falling due on 9th Jan'23, beside equity support to the Bank. This is taken as external credit enhancement in the TFC's structure.
The rating would remain dependent on the viability of the future payments plan or any further credit enhancement mechanism. 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. 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 Act2017). National Rural Support Programme (NRSP) is a majority shareholder with a shareholding of ~57%.

About the Instrument
NRSP Bank issued a rated, unsecured, unlisted, unsecured, and subordinated TFC-II in Jul-21 of PKR 770mln to contribute towards the Bank's Tier II Capital. The TFC will rank pari passu with other Tier II instruments and superior to Additional Tier I instruments and common shares. The tenor of the instrument is 07 years and callable on or after five years with prior approval of SBP. The profit rate is 3MK plus 300bps and is being paid quarterly in arrears on the outstanding principal.

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