PACRA Affirms RW on the Entity Ratings of Apna Microfinance Bank

The rating reflects the risk profile of Apna Microfinance Bank ("the bank"). Apna is a small-tier player in Pakistan’s microfinance sector with ~2.93% share in the total gross loan portfolio. The Bank has 113 business locations comprising 111 branches and 2 service centers. Overall performance indicators depicted a deteriorated outlook in CY21 amidst an economic slowdown exacerbated by the aftermaths of the global pandemic. Therefore, the repercussions were witnessed in the form of declined markup earned and increasing infection. Further challenges in recovery and markup suspension led to a diminution in interest income. During 9MCY22, the bank witnessed a decline in income from advances to PKR 1.5bln (9MCY21: PKR 2.1bln) whereas, on the investment side, gross markup decreased to PKR 380mln (9MCY21: PKR 513mln). At end-Sep22, the earning assets of the company also decreased to PKR 11.2bln (end-Sep21: PKR 16.9bln) attributable to a sharp decrease in the bank’s deposits. Short term-investments reflected improvement and comprise government securities. The infection also enhanced to stand at 26.7% at end-Sep22 reflecting a negative outlook. The equity base of the bank has also reflected a sizeable decline. The outlook on the rating represents the challenges that Bank's business and financial risk profile are facing. These impediments are exhibited in declining profitability, increasing infection, decrease in markup earned, and accumulating losses. The management’s commitment to recouping the asset health and consolidating the bank’s position within the stipulated time is essential. The bank has announced the initiation of the due diligence process for the merger with another microfinance bank. As per the management, the merger is at an advanced stage (with due diligence completed) and shall be concluded soon. The merger and the due diligence is also announced by the other entity, with which Apna Bank is getting merged. If the merger is realized, the sponsors believe that this will improve their ability to saturate both rural and urban areas with microfinance services and expand our focus on women and rural customers. Further capitalization plans of the merged entity are under consideration. However, Bank's CAR stands still below the regulatory benchmark of 15%.
The ratings are dependent upon the bank’s ability to aptly combat the emerging risks under the current scenario in order to improve its business and financial risk profile. The ratings are also kept under “Watch” with the negative outlook incorporating challenges on the profitability front and fulfilling MCR requirements. Compliance with CAR is essential, going forward. Besides, turning loss into profitability is imperative.

About the Entity
Apna Microfinance Bank, listed on Pakistan Stock Exchange, was established under the Microfinance Institution Ordinance 2001. It started operations in 2005. Headquartered in Lahore, it operates a nationwide network of 111 branches and 2 service centers. The overall control of the company vests in an eight-member Board. Mr. Muhammad Akram Shahid is the chairman of the board. Mr. Wajahat Malik is serving as the President and CEO of the bank. He is assisted by a team of experienced professionals, long associated with the company. RSM Avais Hyder Liaquat Nauman & Co. Chartered Accountants are the external auditors of the company. The firm has carried forward its qualified opinion on the financial statements of CY21, in respect of the quantum of non-performing advances, related provisions, and suspended income.