PACRA Maintains Entity Ratings of U Microfinance Bank Limited

The ratings reflect U Microfinance Bank Limited's (U Bank) association with Pakistan Telecommunication Company Limited (PTCL), the country’s leading ICT service provider, which is co-owned by the Government of Pakistan and Etisalat International Pakistan (LLC). The ownership has played a pivotal role in preserving the risk profile of the Bank. The bank's business model focuses on both core and branchless banking, leveraging the sponsor's network and the U-Paisa brand to accelerate expansion in the banking sector through mobile wallet accounts. The Bank's Gross Loan Portfolio (GLP) which stood at PKR 87.7bln at the end of Mar'24 (Dec'23 PKR: 88.7bln; Dec'22 PKR: 61.6bln), whereas the infection ratio of the Bank was 5.15% (Dec'23: 4.6%; Dec22: 1.8%). A primary driver of this expansion was the agriculture segment, which saw substantial growth. The gold-backed secured portfolio, in particular, has shown remarkable progress and continues to surpass the industry average. To strengthen its risk management and enhance financial stability, the Bank is strategically increasing its portfolio of secured gold-backed loans, effectively mitigating the risks associated with unsecured lending. The Deposit of the Bank stood at PKR 114.8bln (Dec'23: 105.7bln; Dec'22: PKR 92.2bln) with major Fixed accounts deposits. The Bank earned a markup income of PKR PKR 6.4bln at the end of Mar'24 (Dec'23: PKR 34.8bln; Dec'22: PKR 18.6bln) with a mark-up expense of PKR 8.3bln (Dec'23: PKR 32.5bln; Dec'22: PKR 14.7bln). The Bank reported a loss after tax of PKR 2.1bln at the end of Mar'24 (Dec'23: PAT of PKR 750.4mln; Dec'22: LAT of PKR 875.6mln). One of the major factors contributing to the losses in the first quarter of 2024 was the suspension of accrued markup income. Additionally, the Bank has adopted IFRS-9 and restated the financial statement for CY22 to align the same with IFRS-9. Subsequently, provisioning has been increased. The Equity of the Bank Stood at PKR 3.5bln (Dec'23: PKR 5.7bln; Dec'22: 3.9bln). The sponsors have firmly committed to supporting the Bank in case of financial distress, if any. As per management's representation, PKR ~1.2bln in subordinated debt and PKR ~1bln in preference shares have been converted into paid-up share capital. Additionally, the Bank has issued rights shares amounting to PKR ~1.2bln, thereby increasing its net paid-up share capital to ~PKR 5bln as of Jun'24. A comprehensive recapitalization plan is being developed through a comprehensive business plan, and the Bank will adhere to this plan moving forward. This plan will support the Bank in achieving compliance with regulatory CAR requirement. The management is diligently pursuing strategies to enhance business sustainability, with a particular emphasis on Islamic Banking and the expansion of Shariah-compliant product offerings, guided by its Shariah Board and experienced bankers.
The ratings depend on the Bank’s risk management, additional equity injections, healthy asset growth, adherence to Capital Adequacy Requirements (CAR), and overall profitability.

About the Entity
In 2012, PTCL acquired 100% shareholding of Rozgar Microfinance Bank Ltd, which was established in 2003, as a district-wide microfinance bank. Henceforth, its name was changed to U Microfinance Bank Limited. PTCL itself is co-owned by the Government of Pakistan (62%) and Etisalat International Pakistan (LLC) (26%) (Etisalat), a state-owned Telecom Corporation of UAE. Management control of PTCL rests with Etisalat. Mr. Mohamed Essa Al Taheri, the Bank's CEO, holds a Master’s in International Business. Etisalat Group enjoys credit ratings of AA-/Stable (2024) and Aa3/Stable (2024) by S&P Global and Moody’s, respectively.