PACRA maintains the rating of U Microfinance Bank Limited | TFC | PKR 3.5bln | Jun21

The ratings reflect the association of U Microfinance Bank Limited (U Bank) with Pakistan Telecommunication Company Limited (PTCL), the country's leading IC&T Service Provider supports the Bank in building strategic alignment and establishing strong systems and controls. The Bank's growth strategy targets retail banking expansion and digital platform development. However, the digital segment is still in its early stages and currently holds a small share in the competitive landscape. More than half of the Bank’s portfolio is gold-backed. The Stage 3 increased to PKR ~4.5bln at the end of Mar'24' from PKR ~3.4bln at the end of Dec'23. The Bank has recognized the provision under IFRS-9 to enhance the reserve by building a buffer and to accommodate any anticipated loan losses. The provision at the end of Mar '24 reported at PKR ~ 5.8bln from PKR ~6.52bln at the end of Dec'23. This provides a strong mitigation against potential credit risk. The Bank reported a loss after tax of PKR ~2.1bln (SPLY: Profit after tax of PKR 357.5mln) due to the one-off impact of markup suspension of the stage 3 portfolio. The shareholder and management demonstrated foresight by appropriately capitalizing the bank with equity injection and conversion of capital instruments. As per management representation, the subordinated debt of PKR ~1.2bln and preference shares of PKR ~1bln have been converted into equity. Furthermore, the Bank has issued rights shares of PKR ~1.2bln, raising its Paid-up Share capital to PKR ~9bln and its net equity to PKR ~5bln, compared to PKR ~5bln and PKR ~3.5bln as of March 2024, respectively. U Microfinance bank in aggregate has paid a markup of PKR ~1,388mln and principal of PKR ~ 2,332mln. The latest payment was made on Jun'24 with a markup of PKR ~ 201mln and principal of PKR ~583mln. The next payment is due on Dec'24. This overview highlights the Bank's proactive measures and solid financial standing.
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. Stable outlook denotes comfort on business risk and financial risk profile of the bank.

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.

About the Instrument
U Microfinance Bank Limited issued (PPTFC) up to PKR 3,500mln. The 50% of the issue amount is secured by a first pari-passu charge on the issuer’s book debts, advances, and receivables with a minimum 25% margin. The remaining 50% of the issue amount is secured by Charge/lien on government securities of a similar tenor. The profit is being paid semiannually in arrears at the rate of 6MK+1.35% p.a. Principal repayment is being paid in 6 Biannual installments amounting PKR 583mln till the maturity of the instrument on Jun'25.The basic purpose of the respective issue is to enhance the advances book which will be fueled by the additional liquidity raised through TFC.