The Pakistan Credit Rating Agency Limited
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Muhammad Atif Chaudhry

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PACRA assigns Initial rating to HBL Microfinance Bank Limited | Tier 2 Capital TFC | PKR 1.5bln | TBI

Rating Type Debt Instrument
(03-Nov-23 )
Action Preliminary
Long Term A
Short Term -
Outlook Stable
Rating Watch -

The ratings assigned to the HBL Microfinance Bank (HBL MfB) underpin the Bank's affiliation with Habib Bank Limited – one of the largest banks in the country and the Aga Khan Fund for Economic Development Group. As per management representation, HBL Microfinance Bank has largest deposit base in the industry amounting to PKR 108bln at end-Jun23 (end Dec'22: PKR 116bln). Non-performing loans stood at PKR 2.87bln (3.0%) as per reviewed accounts at end-Jun23 (end Dec'22: PKR 2.14bln (2.4%). The advances (net) clocked in at PKR 91.69bln at end-Jun23 (end-Jun22: PKR 72.46bln, end-Dec22: PKR 85.38bln). The markup income clocked in at PKR 15.23bln during 6MCY23 (6MCY22: PKR 11.25bln, CY22: PKR 24.06bln), depicting sizable growth of 35%, attributable to enhanced micro-credit loan. The Bank's bottom line stood at PKR 731mln during 6MCY23 (6MCY22: PKR 801mln, CY22: PKR 1,225mln). Capital Adequacy Ratio was recorded at 16.3% as of end-Jun’23. HBL has invested Rs 4bln in equity in the past 3 years, along with providing a subordinated debt in 2020 amounting to Rs 2bln, this depicts HBL’s commitment as a sponsor and faith in performance and growth of HBL Microfinance Bank Ltd. The bank is in process of issuing Tier II TFC of PKR 1.5bln to strengthen the CAR. As per management representation, the impact of COVID-19 and flood-related losses are already well covered and that the watchlist accounts are not sizeable enough to create a significant impact. The CAR of the bank meets the regulatory requirement and the management is confident to augment it further through internal generation and issuance of T2 capital. This is crucial to the ratings.

About the Entity
HBL Microfinance Bank, under the name of The First Microfinance Bank Ltd, “the Bank”, was incorporated in 2002 as a nationwide microfinance bank, licensed by the State Bank of Pakistan. The Bank is majorly owned by Habib Bank Limited (~79.92%), followed by Aga Khan Agency for Microfinance (~12.05%) Aga Khan Rural Support Programme (4.46%), and Japan International Cooperation Agency (JICA) (3.57%). The CEO of the Bank is Mr. Muhammad Amir Khan.

About the Instrument
HBL Microfinance Bank Limited is in the process of a issuing privately placed, fully paid up, unsecured, and Subordinated Debt Instruments, rated in the nature of Tier 2 Capital Term Finance Certificates of up to PKR 1,500 million (inclusive of a Green Shoe option of PKR 500 million) and may subsequently be listed to contribute towards the Bank’s Tier II capital to strengthen capital adequacy. The instrument would have a tenor of 10 years from the date of issue. The profit will be paid semi-annually in arrears at the rate of 6MK+200bps. The first such profit payment is falling due at the end of the sixth (6th) months from the Issue Date and subsequently every six (06) months thereafter. The principal of TFC shall be redeemed in bullet payment at maturity. The instrument will be unsecured and subordinated as to payment of principal and profit to all other indebtedness of the Bank including deposits, but will rank pari passu with other Tier-II instruments and superior to Additional Tier-I instruments. The instrument will not be redeemable before maturity without prior approval of SBP. Neither profit nor principal can be paid (even at maturity) in respect of the TFC if such payment will result in a shortfall in the Bank's Minimum Capital Requirement ("MCR") or CAR or result in an increase in any existing shortfall in MCR and CAR.

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.