The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Entity Ratings of Sindh Microfinance Bank Limited

Rating Type Entity
(29-Mar-23 )
(29-Mar-22 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect the parentage and association of the bank with a financial institution and ultimately with a sub-sovereign. The bank has a conservative risk appetite. With the changing market conditions, the asset infection ratio stood at 3% as of end-Dec'22. The net profitability of the bank exhibited growth to PKR 41mln in CY22 (CY21: PKR 27mln) owing to a rise in markup earned from advances. Moreover, a rise in GLP as micro-credit loans were recorded at (CY22: PKR 1,253mln; CY21: PKR 920mln), which is reflective of the growth in the last year. The lending portfolio concentration is dominated by the flagship product "Sujag Aurat" (Visionary Women), focused on women’s entrepreneurship and financial inclusion. A major share of the funding has been obtained from the State Bank of Pakistan while a small chunk is through financial institutions. Recently, funding from SBP has reflected a reduction attributable to controlling the finance costs by the management. Deposits surged to PKR 600mln (CY21: PKR 271mln) mainly driven by an increase in the savings account. During CY22, the equity of SMFB was recorded at PKR 1bln (CY21: PKR 969mln), the Bank has plans to apply for a National Level License in CY23. The ratings draw comfort from the Bank's association with the Government of Sindh. The financial risk profile is reflected by sanguine liquidity, adequate profitability, and low investment in non-earning assets. Going forward, the sustainability of profits and asset quality shall remain key essentials. Pakistan Microfinance Industry (MFI) comprises 50 microfinance providers including 30 microfinance institutions (MFIs). Active Borrowers continued the increasing trend as 8.5 million borrowers were achieved during CY22, an increase of 5.6% compared to CY21. Similarly, the GLP surpassed PKR 448bln during CY22, an increase of 26.1% compared to the GLP in CY21. The further analysis explains the major contribution to the growth of active borrowers and GLP was contributed by the MFB peer group where Mobilink MFB was at the top of the list due to the significant adoption of digital credit and greater outreach to the customer base. NBMFCs peer group also contributed to the increase by adding 94,000 active borrowers and PKR 2.6bln in GLP. In the case of MFBs, PAR > 30 days slightly increased to 5.3% (CY21: 5.2%). However, the PAR > 30 days of MFIs recovered to report at 4.1% in CY22 (CY21: 5.5%).
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. Given the strong financial muscle of the sponsor, the Bank’s propensity to protect its performance indicators is imperative.

About the Entity
Sindh Microfinance Bank was incorporated with the Securities and Exchange Commission of Pakistan (SECP) in 2015 and commenced operations in May 2016. The Bank is a wholly-owned subsidiary of Sindh Bank. The head office of the bank is located in Karachi. Currently, the Bank operates in the province of Sindh with a network of 19 branches and 71 micro-credit centres (service centres) spread across the province. The Board of Directors comprises seven members; two members are representatives of the Sindh Bank. Mr. Shams-ud-din Khan is the Chairman of the Board. He was formerly associated with Pak-Kuwait Investment Company (PKIC) and has an overall experience of over ~40 years. Mr. Shoaib Arif, the CEO, is a microfinance industry veteran having an overall experience of more than ~20 years. He is accompanied by a team of professionals.

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.