Final PR
The Pakistan Credit Rating Agency Limited

Mahina Majid

Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]
  • MicroFinance Institutions (Jun 16) [View]

Related Research

  • Sector Study | Microfinance Banks (Feb 17) [View]
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PACRA assigns Ratings to NRSP Microfinance Bank Limited
 Rating Type Instrument Entity
 Action  Maintain  Initial
 Long Term  A  A
 Short Term  -  A1
 Outlook  Stable  Stable
 Rating Watch - - - -

The ratings incorporate emergence of the Bank as a growing institution, evident from consistent improvement in business volumes and ensuing profitability. The loan book has reported significant growth since inception, catering needs of ~17% borrowers of the MFB market at end-Dec16. Though the product design of the bank keeps the concentration high, it takes comfort from the prudent strategy to focus group-lending in rural areas and a sizeable portion of crop-linked loans. Moreover, the bank is eyeing diversification through introducing new microfinance products and expanding its Islamic micro-lending division. The healthy asset quality of the bank is exhibited by its low non-performing loans (NPLs); NPLs to gross advances (0.4%) remains lower than industry (1.4%). The expansion strategy boded well for the bank resulting into enhanced custom er outreach evident from the escalated deposit base. This has made the bank a major contributor in the micro-savings and is expected to sustain its position, benefiting from the specified branches introduced for deposit mobilization. The ratings reflect association of NRSP Microfinance Bank with the National Rural Support Programme, the major shareholder, and with the three foreign development organizations - IFC, Acumen, and KfW, providing both technical and financial support to the bank. The Bank is poised towards expansion mainly focusing in untapped rural areas and aims to introduce technology driven banking products in near future.

The ratings are dependent on the bank's ability to sustain improving trend in its market position. Given the expansion strategy of the bank, related risks mainly credit quality needs to be monitored carefully. With the anticipated growth in deposits, the management needs to keep a check on the stretched liquidity profile of the Bank, and keeping it compliant with the statutory liquidity requirement.
About the Entity
NRSP Microfinance Bank Limited (NRSP Bank) commenced operations in Mar’11 as a nation level microfinance bank. The bank is majority (~52%) owned by National Rural Support Program (NRSP). Kreditanstalt für Wiederaufbau (KfW), International Finance Corporation (IFC), and Acumen each have ~16% shareholding in the Bank. With a network of 98 branches, the bank has its head office in Bahawalpur, a key district in Southern Punjab; this places it closer to its target market.

NRSP's board comprises 3 representatives from NRSP, 1 nominee each from IFC, KfW, and Acumen, 2 independent directors and the CEO. Mr. Zahoor Hussain Khan - President since 2011 – an experienced microfinance banker, is assisted by a qualified management team.

About the Instrument
The Bank issued secured, privately placed TFC of PKR 3bln for a tenor of 2 years to support expansion in microfinance Jun16; quarterly coupon payments at 3M KIBOR plus 2.35%. Security structure comprises pari passu charge on the bank's current assets with 25% margin and cash coverage of PKR 300mln throughout the life of instrument.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.