Karachi, December 31, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has maintained entity ratings of First Paramount Modaraba (FPM) at ‘BBB/A-3’ (Triple B/A-Three), with outlook being revised from “Stable” to “Rating Watch -Developing” status. The long-term rating of ‘BBB’ signifies adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. Short term rating of ‘A-3’ depicts satisfactory liquidity and other protection factors which qualify entities / issues as investment grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. The previous rating action was announced on December 30, 2020.
Ratings encapsulates revisions in criteria for deposit taking Modarbas under “The Modarba Regulations 2021” issued by Securities and Exchange Commission of Pakistan (SECP) in March 2021, whereby critical directives include maintenance of minimum equity levels of Rs. 500m, long term credit ratings of “A-”, and CAR of 8% for the first two years of operations followed by 10% thereafter. SECP has extended a period of one year to comply with the instructions, and FPM duly complies with the CAR ratio requirement with sizeable cushion, while remains short of capital and credit rating requirements.
Consequently, the company has requested for further extension to comply with the requirements, and have submitted a yearly plan extending to five years to the regulator. Ratings have been placed on “Rating Watch-Developing” status to account for changes in the regulatory requirements till the company conforms to the same. Ratings remain sensitive towards equity injection by the company to reach the required levels which will be closely monitored by VIS.
Ratings also encompass low business risk of the company on account of conservative lending appetite with primary focus on asset quality indicators. Financing portfolio witnessed decline in FY21; however lending has picked substantial pace post FY21. Nonetheless, focus remains on a cautious growth strategy with per party limits comfortably below regulatory ceilings. Non-performing loans continued to remain minimal in FY21 resulting in maintenance of gross infection levels. Profitability profile depicts positive momentum going forward, evident through sizeable uptick in revenues in Q1’FY22 on account of increase in FPM Petro Services.
Furthermore, income from online screening facility of AML/CFT risks will be reflected in FY22 which will further boost overall topline. Operating expenses moved in tandem with total operating income, resulting in maintenance of efficiency levels in FY21. However, profit after tax witnessed increase during the outgoing year despite decline in topline due to increase in other income and decrease in finance costs in FY21. Liquidity profile continued to remain within manageable levels in FY21.
Capitalization indicators stood at similar levels in FY21 due to limited growth in profitability and slight deterioration in mobilization of COMs. However, leverage indicators are expected to depict improvement going forward with expected equity injection in accordance with directives of The Modarba Regulations 2021. Ratings remain dependent upon improvement in leverage levels and profitability, coupled with maintenance of portfolio quality indicators going forward.
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/