PACRA Revises Entity Ratings of FINCA Microfinance Bank Limited

FINCA is categorized among mid-tier microfinance banks. The Bank reflects a presence across the province with 130 branches and around 13 districts. The ratings incorporate the association of FINCA (“the Bank”) with a global microfinance organization – FINCA International. This affiliation supports FINCA Microfinance Bank in terms of building a strategy and in establishing systems and controls. Currently, there are a few happenings underway that may result in a change in ownership in near future. Developing Outlook and Rating Watch indicates the expected change in ownership, in the medium term, as the possibility of the merger is being explored. During the last two years, attributable to consolidation going on, the footprint of the bank is largely sustained. Overall performance indicators reflected a deteriorated outlook amidst the economic slowdown lately exacerbated by the aftermaths of floods. Asset quality was also significantly impaired on account of the expiry of SBP’s deferment scheme period, with the majority portion being unprovided. Full recovery of the principal amount will remain essential to avoid a further dent in profitability. Markup earned and net markup income dropped consistently in line with GLP, during the last few quarters. Consequently, the bottom line of the Bank, during 9MCY22, reported a loss before taxation of PKR 728mln (CY21: PKR 1,514mln). Sponsor’s commitment to recouping the asset health and consolidating the Bank’s position within the stipulated time is an acute necessity. Revision in the rating incorporates the rising NPLs and write-offs along with the decline in profitability during the recent quarters. Also, the sizable decline in the equity base and deterioration in the CAR of the bank is concerning.
Since the projected outlook of the Bank indicates absorbing significant cash losses, timely yet matching sponsor support through equity injections is essential. The ratings are dependent upon the out-turn of management’s plans to steer the risk profile of the Bank toward an improved trajectory. Timely Sponsor Support is imperative.

About the Entity
Kashf Holdings (Pvt.) Ltd. established the bank in 2008. In 2013, FINCA International acquired majority ownership in the bank, through the dilution of Kashf Holdings' shareholding. FINCA International has a majority stake of 86.4%, through FINCA Microfinance Cooperatief U.A; a commercial arm registered in the Netherlands. Kashf Holdings (Pvt) Ltd. holds a 5.2% stake in the bank. The remaining stake is distributed among i) International Finance Corporation (4.9%), ii) Triodos Fair Share Fund (2.7%), and iii) Acumen Fund Pakistan (0.8%). FINCA offers a diversified range of financial products and services. The bank operates with a network of 130 branches. Mr. Jahanzeb Khan - CEO - possesses 24 years of experience with one of the largest financial services institutions. He is assisted by an experienced management team.