PACRA assigns Initial rating to HBL Microfinance Bank Limited | Tier 2 Capital TFC | PKR 1.5bln | Mar-24

The ratings assigned to the HBL Microfinance Bank underpin the Bank's affiliation with Aga Khan Development Network and Habib Bank Limited (HBL). The Bank is categorized among top-notch microfinance banks currently. As per management representation at end-Dec23, the Bank secured a market share of ~24.5% in the microfinance sector in terms of deposits and ~17.4% in terms of GLP. The advances book posted a huge increase of ~ 15% and stand at PKR 100.9bln (end-Dec22: PKR 87.9bln). Non-performing loans stood at PKR 2.74bln (3.0%) as per reviewed accounts at end-Dec 23 (end Dec'22: PKR 2.14bln (2.4%). Funding is majorly fueled through deposits where high contribution arises from the demand deposits. As per management representation, HBL Microfinance Bank has the largest deposit base in the industry amounting to PKR 128.23bln at end-Dec23 (end Dec'22: PKR 116.06bln). The markup income clocked in at PKR 33.23bln during CY23 (CY22: PKR 24.06bln), depicting sizable growth of 38%, attributable to enhanced micro-credit loan. The Bank's higher provisioning expense in CY23 is attributable to the increased specific provisioning. However, due to an increase in markup and non-markup expenses, the Bank's bottom line decreased significantly by ~67% and stood at PKR 405mln during CY23 (CY22: PKR 1,225mln).
Capital Adequacy Ratio decreased significantly and stood at ~15.3% as of end-Dec’23 barely meeting the minimum regulatory requirement (end-Dec22: ~16.4%) but the management is confident about boosting the CAR through equity injection, citing the recent announcement of a substantial investment of ~PKR 6bln by its parent, Habib Bank limited.

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. M Amir Khan.

About the Instrument
HBL Microfinance Bank Limited issued privately placed, unsecured, and Subordinated Debt Instruments, rated in the nature of Tier 2 Capital Term Finance Certificates of PKR 1,500mln in Mar-24 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 "MCR" or "CAR" or result in an increase in any existing shortfall in MCR and CAR.