First Punjab Modaraba

CREDIT RATING REPORT | Sep-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
19-Sep-25 A- A2 Stable Maintain -
20-Sep-24 A- A2 Stable Maintain -
20-Sep-23 A- A2 Stable Maintain -
20-Sep-22 A- A2 Stable Maintain -
24-Sep-21 A- A2 Stable Maintain -
About the Entity

First Punjab Modaraba ('the Modaraba'), established in 1992, is a perpetual and multidimensional Modaraba listed on the Pakistan Stock Exchange. The Modaraba is engaged in financing through Ijarah, Morabaha, and Diminishing Musharaka. Punjab Modaraba Services (Pvt.) Limited, a wholly owned subsidiary of The Bank of Punjab (BoP), is the Management Company of the Modaraba and holds a stake of ~39% stake in the Modaraba. General Public holds a stake of ~ 40%. While the remaining ~21% is held by financial institutions. Mr. Ijaz Ul Rehman has been lately nominated as the Board's Chairman. While, Mr. Asim Jahangeer Seth has been lately appointed as the CEO of the Modaraba. They are supported by a well equipped management team.

Rating Rationale

First Punjab Modaraba ('the Modaraba') ratings reflect its association with The Bank of Punjab (BoP) (Rated AA+ by PACRA). The Modaraba's earning assets, particularly in the lending sector, mainly focus on vehicle financing. Income levels are suppressed. Moreover, the declining interest rate trajectory may further impact the Modaraba's income-generating ability. Overall, the growth remains sluggish, with core income performance deteriorating due to high finance costs. The accumulation of losses remains a pressing concern impacting the equity base of the Modaraba, which currently stands at PKR 145mln as of Mar-25 (as of Dec-24: PKR 208mln). The sponsor - Bank of Punjab (BoP) - provided long-term redeemable capital of PKR 1.5bln, along with an injection of a subordinated loan of PKR 500mln in CY24. The sponsor has injected PKR 2 billion as a subordinated loan, which will be reflected on the Modaraba’s balance sheet as of June 2025. This was expected to improve the overall liquidity and enhance the business generation capacity. However, challenges in maintaining a healthy equity position persist. Lately, a structural change in the management of the Modarba has been observed. A comprehensive business plan, approved by the Modaraba's Board, is in process. The sponsor would revitalize their commitment with Modaraba; thus, leveraging the support, the Modaraba can revamp its otherwise weak financial and business profile. The ongoing challenges require vigilance.

Key Rating Drivers

The ratings are dependent on the relative positioning of the Modaraba in the sector and the sustained asset quality of the new portfolio: achieving bottom-line profitability is important. Meanwhile, any weakening in the financial profile or support from the sponsor could have negative implications.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

First Punjab Modaraba

rating analysis

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Profile
Structure

First Punjab Modaraba ('the Modaraba'), established in 1992, is a perpetual multi-purpose Modaraba, listed on PSX as ‘FPJM’.


Background

The Modaraba was formed under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980. The Modaraba is managed by Punjab Modaraba Services (Pvt) Ltd ('the Management Company'), a wholly-owned subsidiary of The Bank of Punjab (BoP).


Operations

The Modaraba caters to corporate, commercial, and individual customers through various modes of Islamic financing, mainly Ijarah, Morabaha, and Musharikah. Musharikah pertains to vehicle financing. Ijarah focuses on plant & machinery, vehicles, and the Home Decor Scheme. Morabaha targets financing for raw materials (working capital) for different sectors. Its head office is situated in Lahore.


Ownership
Ownership Structure

The Management Company retains ~39% ownership in the Modaraba, while ~21% of the shareholding is distributed among various financial institutions and corporate entities. The general public holds the remaining ~40%.


Stability

The Modaraba is managed by the Management Company, so the BoP stands behind the Modaraba as it has been providing financial assistance for years. As the Government of Punjab is the majority shareholder of BoP, it will also provide comfort to the Modaraba.


Business Acumen

The Modaraba benefits from the BoP’s industry-specific expertise in lending and financing a diverse range of customers and sectors across Pakistan.


Financial Strength

BoP has committed its financial support to meet the mandatory capital requirements and also, has also furnished a support letter from its Board. As of CY24, the BoP’s total assets amount to PKR 2,380bln and is assigned a long-term rating of "AA+" by PACRA.


Governance
Board Structure

The Board of Directors (BoD) comprises eight members, including the CEO. Apart from the CEO, who is an Executive Director, the Board includes five Non-Executive Directors and two Independent Directors.


Members’ Profile

Mr. Ijaz Ul Rehman, the Chairman, has diversified experience in handling financial affairs in different capacities with over 26 years of post-qualification experience. Presently, he is serving the BoP as Group Head Operations at the BoP. Mrs. Samina Afsar, an independent director, has 17years of experience.  She has been associated with the Modaraba for five years. Other Board members have diverse experience to facilitate the decision and policy making process.


Board Effectiveness

To enhance the Board's effectiveness, the Modaraba has established three Board-level committees: the Audit Committee, the Human Resource Committee, and the Risk Management Committee. These committees have met 5 times during CY24. Audit committee met quaterly while other committes meat atleast annualy. The minutes of these meetings are properly maintained.


Financial Transparency

Kreston Hyder Bhimji & Co. Chartered Accountants, external auditor of the Modaraba, have expressed an unqualified opinion on the review of the financial statements for CY24. The auditor is also present on the SBP Panel of auditors.


Management
Organizational Structure

The Modaraba's operations are segregated and managed through the Executive Director and Departmental Heads. All department heads report directly to the CEO, with the exception of Internal Audit, which reports directly to the Board Audit Committee


Management Team

Mr. Asim Jahangir Seth has been lately appointed as the CEO during Mar-25. Mr. Asim has been with the Modaraba since Mar-25, previously serving as the Corporate Business Head. Mr. Zeeshan Ahmed, the CFO, has been associated with the Modaraba for over a year. A new management position has been created introduced which is taken by Mr. Shariz Butt as Cheif Operating Officer(COO), previously serving as CFO of Trust Modaraba and posess 18 years of banking experience. The team comprises a balanced mix of professionals. The rest of the team comprises a balanced mix of experienced professionals.


Effectiveness

The Modaraba has four committees for better functioning of its affairs: i) Credit Committee, ii) Investment Committee, iii) Asset and Liability Committee, and iv) Management Committee. To ensure adherence to policies & procedures, management committees are working effectively.


MIS

The Modaraba has acquired an online, centralized Al-Nizam Solution that has been custom-developed in a server application architecture that will help in managing the business processes easily and efficiently.


Risk Management framework

The Modaraba has implemented the Obligor Risk Ratings (ORRs) module to support prudent credit decisions. This solution enhances the Modaraba's system, making it real-time, user-friendly, and secure.


Business Risk
Industry Dynamics

The business environment in the country remained challenging, and measures taken by the Government toward economic stabilization have impacted overall business sentiments. Due to adverse economic indicators in recent periods, the scenario has turned into a gloomy outlook. The transportation sector has also been under strain and disbursements in the vehicle business were conservatively reduced, however gradual revival of the sector seems imminent. The cost of business has risen and NBFCs continue to face stiff competition from banks.


Relative Position

The Modaraba has established itself as one of the leading players in the Modaraba industry, acquiring a share of ~3.68% based on total assets as of 3MCY25.


Revenues

During CY24, the Modaraba's advances income reflected an uptake of ~13% reporting at PKR 276mln (CY23: PKR 244mln). Diminishing musharikah financing remained the top contributor with generating ~80%. During 3MCY25, the advances income reported at PKR 59mln, reflecting a decrease of ~25% (3MCY24: PKR 79mln). Going forward, overall performance is expected to increase.


Performance

During CY24, the Modaraba's net markup income reported a loss of PKR 12mln (CY23: Loss of PKR 51mln), with the increased loss attributed to higher markup expenses during the period. Additionally, during 3MCY25, the Modaraba reported a net markup loss of PKR 23mln (3MCY24: PKR 16mln). The overall performance deteriorated due to Non-Markup expenses made during CY24, but net losses reduced to PKR 94mln (CY23: PKR 112mln). During 3MCY25, the Modaraba reported a net loss of PKR 63mln (3MCY24: of PKR 3mln). Going forward, the overall business performance is expected to remain stressed.


Sustainability

Lately, a structural change in the management of the Modarba has been observed. A comprehensive business plan, approved by the Modaraba's Board, is in process. The sponsor would revitalize their commitment with Modaraba; thus, leveraging the support, the Modaraba can revamp its otherwise weak financial and business profile. The ongoing challenges require vigilance.


Financial Risk
Credit Risk

The Modaraba seeks to manage its credit risk exposure through diversification of Ijarah activities to avoid undue concentrations of risks with individuals or groups of customers in specific locations or businesses. The Modaraba also obtains security deposits when appropriate. Cash at Banks is held only with reputable banks with high-quality creditworthiness. Credit risk is highest in the Aviation and Transport sector. Going forward the Modaraba intends to have a mix of carporate and individuals customers to manage its credit risk.


Market Risk

Market risk includes currency risk, interest rate risk, and price risk. The Modaraba is exposed to interest rate risk only. The Modaraba does not have any fixed-rate financial assets and liabilities. However, going forward the decrease in interest rate will have an impact on the profitability of the company.


Liquidity and Funding

The total funding of the Modaraba declined by ~2% to PKR 2,036mln during CY24 (CY23: PKR 2,078mln) and remained stagnant during 3MCY25, reporting at PKR 2,035mln. Funding is solely from the sponsor in the form of deposits. During CY24, the sponsor provided long-term redeemable capital of PKR 1.5bln, which has lately been restructured, to enhance the liquidity position of the Modaraba. BoP has affirmed its commitment to continuing financial assistance. Liquid assets declined significantly to PKR 23mln during CY24 (CY23: PKR 234mln) due to a reduction in bank deposits, but increased by ~208% in 3MCY25 due to an increase in bank deposits, which impacted the liquid assets/funding coverage ratio and reported at ~3.5% (CY24:~1.1%). Going forward the liquidity position is expected to improve.


Capitalization

In line with its commitment, the sponsor, BoP, has extended a subordinated loan of PKR 500mln, which has enhanced the equity base and the Modaraba’s per party limits as per Modaraba Regulations, 2021. The equity base of the Modaraba reported positive results during the period. During CY24, inclusive of subordinated loan, the equity base stood at PKR 208mln (CY23: PKR 378mln). As at 3MCY25, the equity base was depleted by net loss of (3MCY25: ~PKR 63mln), reporting at PKR 145mln. Going forward, The sponsor has injected PKR 2 billion as a subordinated loan, which will be reflected on the Modaraba’s balance sheet as of June 2025.
 
 

Sep-25

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First Punjab Modaraba

financial summary

(PKR mln)

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Mar-25
3M		 Dec-24
12M		 Dec-23
12M
A. BALANCE SHEET
1. Total Finance-net 1,318 1,428 1,379
2. Investments 16 25 50
3. Other Earning Assets 62 14 223
4. Non-Earning Assets 285 301 293
5. Non-Performing Finances-net 180 208 246
Total Assets 1,861 1,976 2,190
6. Funding 2,035 2,036 2,078
7. Other Liabilities 181 232 234
Total Liabilities 2,216 2,268 2,312
Equity (355) (292) (122)
B. INCOME STATEMENT
1. Mark Up Earned 68 359 308
2. Mark Up Expensed (91) (371) (358)
3. Non Mark Up Income 4 46 24
Total Income (19) 34 (27)
4. Non-Mark Up Expenses (16) (98) (80)
5. Provisions/Write offs/Reversals (13) (9) (46)
Pre-Tax Profit (48) (74) (153)
6. Taxes (15) (21) 42
Profit After Tax (63) (94) (112)
C. RATIO ANALYSIS
1. PERFORMANCE
a. Non-Mark Up Expenses / Total Income -84.8% 289.2% -295.5%
b. ROE -77.9% -45.6% -166.0%
2. CREDIT RISK
a. Gross Finances (Total Finance-net + Non-Performing Advances + Non-Performing Debt Instruments) / Funding 75.0% 81.9% 78.2%
b. Accumulated Provisions / Non-Performing Advances 13.4% 13.4% 0.0%
3. FUNDING & LIQUIDITY
a. Liquid Assets / Funding 3.5% 1.1% 11.2%
b. Borrowings from Banks and Other Financial Instituties / Funding 0.0% 0.0% 0.0%
4. MARKET RISK
a. Investments / Equity -4.5% -8.7% -40.8%
b. (Equity Investments + Related Party) / Equity 0.0% 0.0% 0.0%
5. CAPITALIZATION
a. Equity / Total Assets (D+E+F) -19.1% -14.8% -5.6%
b. Capital formation rate (Profit After Tax + Cash Dividend ) / Equity -86.2% -77.4% -890.6%

Sep-25

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First Punjab Modaraba

rating scale

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Sep-25

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First Punjab Modaraba

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
    1. No director, officer, or employee of PACRA communicates the information acquired by him for use for rating purposes to any other person, except where required under law to do so. (Chapter III; 10-(5))
    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
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  6. Probability of Default
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Sep-25

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