PACRA maintains the rating of U Microfinance Bank Limited | TFC | PKR 3.5bln | Jun21

The ratings reflect the association of U Microfinance Bank Limited (U Bank) with Pakistan Telecommunication Company Limited (PTCL), the country's leading Information and Communication Technology Service Provider. This affiliation supports the Bank in terms of building a strategic congruence alongside establishing robust systems and controls. The Bank's ambitious growth strategy encompasses multi-faceted targets focused on achieving growth in the retail banking segment, and developing a digital banking platform. The Bank's digital segment is yet to progress a long way to mark its presence in the competitive landscape; the mix is currently small. Almost half of the Bank’s portfolio is gold-backed. The NPLs increased to PKR ~3.1bln at the end of Sept'23 from PKR ~1.18bln at the end of Dec'22. The Bank has recognized significant provision under IFRS-9 to enhance the reserve by building a buffer and to accommodate any anticipated loan losses. The provision at the end of sept'23 increased to PKR ~ 7.83bln from PKR ~6.51bln at the end of Dec'22. This provides a strong mitigant against potential credit risk. Sizable enhanced Profit After tax provides comfort as the Bank reported PAT of PKR ~1,724mln (SPLY: Loss after tax of PKR 512.7mln). U Microfinance bank in aggregate has paid a markup of PKR ~1,187mln and principal of PKR ~1,749mln. Latest payment was made on Dec'23 with markup of PKR ~277mln and principal of PKR ~583mln. Next payment is due on Jun'24. This comprehensive overview underscores the Bank's proactive measures to address challenges while maintaining a strong financial position.
The ratings are dependent upon the Bank’s ability to aptly combat the emerging risks under the current scenario in order to keep its business and financial risk profile intact. Stable outlook denotes comfort on business risk and financial risk profile of the bank.

About the Entity
In 2012, PTCL acquired 100% shareholding of Rozgar Microfinance Bank Ltd, which was established in 2003, as a district-wide microfinance bank. Henceforth, its name was changed to U Microfinance Bank Limited. PTCL itself is co-owned by the Government of Pakistan (62%) and Etisalat International Pakistan (LLC) (26%) (Etisalat), a state-owned Telecom Corporation of UAE. Management control of PTCL rests with Etisalat. Mr. Mohamed Essa Al Taheri is new CEO of the Bank and has Master’s degree in International Business from the University of Wollongong, Dubai. He has over 20 years of professional experience, with HSBC Bank, Dubai Commercial Bank, and the Development Board of Dubai Government.

About the Instrument
U Microfinance Bank Limited issued (PPTFC) up to PKR 3,500mln. The 50% of the issue amount is secured by a first pari-passu charge on the issuer’s book debts, advances, and receivables with a minimum 25% margin. The remaining 50% of the issue amount is secured by Charge/lien on government securities of a similar tenor. The profit is being paid semiannually in arrears at the rate of 6MK+1.35% p.a. Principal repayment is being paid in 6 Biannual installments amounting PKR 583mln till the maturity of the instrument on Jun'25.The basic purpose of the respective issue is to enhance the advances book which will be fueled by the additional liquidity raised through TFC.