PACRA Revises the Entity Ratings of Apna Microfinance Bank

Apna Bank has been facing multiple challenges emanating from muted advances in portfolio growth, low equity base, the legacy of bad portfolio, and concentration of the deposit profile. The challenges were exacerbated by weakening in the macroeconomic fundamentals, unprecedented inflation, and the offshoots of the COVID-19 pandemic. Varied implications of the COVID-19 pandemic and related restructuring have been witnessed in the industry players. Few players proactively managed and recovered related affected portfolios whilst challenges extravagated for few others. The management of Apna Bank made significant efforts to curtail and contain the negative consequences of portfolio restructuring under COVID-19; however, there was a significant drag on the health of its portfolio and its earning ability.
In cognizance of this, the sponsoring shareholder endeavored to find a solution by way of a merger with another MFB, FINCA Microfinance. Lately, Apna Bank notified PSX that the merger is not moving ahead. Meanwhile, the Bank’s bottom line reported a net loss of PKR 4.4bln (CY21: PKR 1.9bln). The Bank’s accumulated loss further increased to PKR 7.3bln (CY21: PKR 2.8bln). Equity base, in turn, risk absorption capacity reflected sizable dilution. Equity base was reported at PKR 4bln negative at the end-Dec22. Presently, the Bank is in breach of MCR. Further, the CAR was non-compliant with the minimum regulatory requirement as per Prudential Regulations for Microfinance Banks, 2014. The sponsoring shareholders are finding ways to recapitalize the bank, for which a few options are being considered. Timeliness is important. The management is striving for recoveries, where they are hopeful that a significant amount of loan can be recovered. Also, the current portfolio is being switched towards a gold portfolio to further secure the bank, while building a revenue stream. A good size of liquidity is parked in government securities and bank placements, which support the risk profile.
Going forward, the provisioning expense is expected to increase in upcoming quarters. Despite the buildup in NPLs, the management should focus to enhance the recoveries. Turnaround can be achieved by equity injection and building up performing assets to generate income for the bank in upcoming years. The management of asset quality and strengthening of CAR remains vital.
The ratings are dependent upon the bank’s ability to aptly combat the emerging risks under the current scenario 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. Apna is a small-tier player in Pakistan’s microfinance sector with ~3% share as of Dec’22 in terms of GLP. The Bank has 113 business locations comprising 111 branches and 2 service centers. The overall control of the company vests in a nine-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.