The Pakistan Credit Rating Agency Limited
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Muhammad Fahad Iqbal

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PACRA Maintains Entity Ratings of Apna Microfinance Bank Limited

Rating Type Entity
(30-Apr-21 )
(30-Apr-20 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A3 A3
Outlook Stable Stable
Rating Watch Yes Yes

The rating capture the sustained risk profile of Apna Microfinance Bank ("the bank"). Sponsors' committed efforts to arrest shortfall in minimum CAR benchmark is witnessed through persistent equity injections. However, Bank's CAR stands at 13.61% as of Mar'21 which is still below the regulatory benchmark of 15%. The bank's credit delinquency is largely maintained, as witnessed from its NPL ratio of 4.6% as at End-Dec'20 (End-Dec'19: 5.4%). This is achieved on the backdrop of cleansing a major chunk of the old portfolio (prior Nov-16), adopting a cautious approach towards fresh lending, and building a finer recovery mechanism. The recovery cycle indicates an average of quarterly outstanding receivables, as asserted by the management. Auditor opinion is currently qualified for the bank and is expected to continue until the old loan portfolio clears out in totality. The ratings take into account sponsors' cognizance in this regard. The financial risk profile is demonstrated by grown liquidity, and comfortable Advances-to-deposits ratio (ADR), while profitability remains thin. Bearing the prevailing economic environment, cost rationalization is one of the key challenges to the bank in keeping its margins intact. Additionally, building up a stable and diverse deposit base is fundamental to fuel the momentum of growth. Under the current scenario, continuity of the COVID-19 pandemic (penetration of the third wave in Pakistan) will poise challenge to business and asset quality. Though SBP’s Relief Packages have come in handy to the sector in protecting the credit quality of the players during the first wave, the out-turn of the situation, and its relative impact on the risk profiles of industry players, including Apna, is yet to unfold in the days to come.
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. The ratings are also kept under “Watch” to monitor challenges arising from the COVID-19 pandemic. Compliance with CAR is essential, going forward. Besides, improved 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 116 branches and 5 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. Gulistan 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. Ilyas Saeed & Co. Chartered Accountants are the external auditors of the company. The firm has carried forward its qualified opinion on the financial statements of CY20, in respect of the quantum of non-performing advances, related provision, and suspended income.

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.