PACRA Maintains Rating of NRSP Microfinance Bank Limited | Tier II TFC

NRSP Microfinance Bank Limited (the "Bank"), a subsidiary of the National Rural Support Programme (NRSP), issued Tier II TFC ("TFC" or the "Instrument") in July 2021. The instrument's rating reflects the sustained support from its sponsor and a stable ownership structure, with the strong financial position of the sponsors enhancing the Bank’s financial resilience. The Bank successfully navigated industry challenges by leveraging sponsor support and implementing strategic planning. This proactive approach has driven growth, expanded the customer base, and strengthened the Bank’s market position, now holding approximately a 9.0% share of the total gross loan portfolio as of Sep'24. During the period NRSP contributed PKR 1,304 million as share deposit money as part of the equity injection plan, with additional investors also signaling intent for equity injections, to which NRSP will contribute a matching share. The Bank began generating profits in 3QCY23, reporting a profit after tax of PKR 781mln for the 9MCY24 ending Sep'24 (Sep:23: PKR 546mln). Equity reached approximately PKR 3.1bln at the end of Sep'24, up 50% from PKR 2bln in Dec'23. However, the Bank continues to face challenges in meeting the Capital Adequacy Ratio (CAR) requirements, with the CAR at 0.05% as of Sep'24, an improvement from -6.02% in Dec'23. Management expects to close the gap and achieve regulatory compliance by June 2025, based on current performance trends. The capital injection plan is currently in development, and the equity injection plan is part of the whole business strategy of the Bank, in this regard, the process of hiring external consultants to evaluate the feasibility of the business strategy has been successfully concluded. The sponsor has historically provided both technical and financial support to the Bank, with NRSP explicitly expressing its intent to offer financial assistance through capital injections as needed.
The ratings depend upon the out-turn of management’s plans to steer the Bank's risk profile towards an improved trajectory. Timely sponsor support is crucial. The ratings would also monitor the impact of technological advancement on the operational and risk efficacy of the Bank and reflect the need to oversee the risk profile of the Bank against unavoidable challenges, going forward.

About the Entity
NRSP Microfinance Bank Limited was incorporated as a public limited unlisted Company in October 2008 under Section 32 of the Companies Act 2017. NRSP is a majority shareholder with a shareholding of ~57%.

About the Instrument
In July 2021, NRSP Bank issued an unsecured, unlisted, and subordinated NRSP Microfinance Bank Limited | Tier II TFC ("TFC" or the "Instrument") of PKR 770mln to strengthen its Tier II Capital. This 7-year TFC ranks pari passu with other Tier II instruments and above Additional Tier I instruments and common shares. It is callable after five years with SBP approval and carries a profit rate of 3MK plus 300bps, paid quarterly on the outstanding principal. 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.