Karachi, April 28, 2023 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of U Microfinance Bank Limited (Ubank) at ‘A+/A-1’ (Single A Plus/A-One). Long-term rating of ‘A+’ denotes good credit quality with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. Short-term rating of ‘A-1’ indicates high certainty of timely payment with excellent liquidity factors that are supported by good fundamental protection factors. Risk factors are considered to be minor. The rating of subordinated Tier-2 TFC (Rs. 600m) and Tier-1 TFC (Rs. 1.0b) have also been reaffirmed at ‘A’ (Single A) and ‘A-’ (Single A minus), respectively. The medium to long-term rating of ‘A’ and ‘A-’ denotes good credit quality, with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on April 30, 2022.

The ratings assigned to Ubank reflect strong sponsor profile and consistent demonstrated support of PTCL which has been assigned an entity rating of ‘AAA/A-1+’ (Triple A/A-One Plus) by VIS and is co-owned by the Government of Pakistan and Etisalat International Pakistan (LLC). The implicit support from the sponsor was witnessed from the conversion of Tier-II Subordinated Debt amounting to Rs. 2.8b over the last three years along with recent conversion of Rs.1.0b into ordinary shares during the outgoing year, which added further depth to capitalization indicators of the Bank. A further addition of Rs. 1.0b to the equity base was made in June’22 in the form of a Tier-1 instrument which has also assisted in maintaining growth momentum and capital buffers for the assigned ratings.

The assigned ratings continue to derive strength from the Bank’s business strategy involving enhanced towards secured portfolio; a significant part of Ubank’s micro-credit portfolio is gold-backed signifying lower credit risk; the overall secured portfolio of the Bank continues to be larger than peers. Further, the ratings incorporate fair asset quality indicators; the Bank has also implemented IFRS-9 resulting in additional provisioning buffers. Moreover, the Bank is adequately protected against risk of non-repayment by the borrowers pertaining to recently restructured flood impacted portfolio as over two-thirds of the portfolio is gold-backed. The ratings further reflect growth in business volumes and strengthening of liquidity profile.

In addition, comfort is drawn from significant scale of treasury operations reflecting positively in the profitability indicators; U Bank’s profit after tax is the highest amongst peer microfinance banks. In addition, with volumetric growth in investment portfolio comprising of T-Bills, PIBs and mutual funds, the coverage of deposits and borrowings by liquid assets improved in the outgoing year. The assigned ratings have taken the impact of first-time adoption of IFRS -9 due to which the increase in impairment allowance for the Bank passed through its equity caused it to decline slightly in comparison to the previous year. The Bank maintained capitalization buffers well above the regulatory requirements. Going forward, ratings are dependent on achievement of projected growth plans while maintaining asset quality indicators and profitability indicators and retaining buffer over regulatory capital requirement.

For more information, contact:

Director Compliance and Rating Analytics,

VIS Credit Rating Company Limited

VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,

Phase VII, DHA, Karachi, Pakistan

Tel: +92-21-35311861-72

Fax: +92-21-35311873

Email: bilal@jcrvis.com.pk

Website: https://www.vis.com.pk/