The Pakistan Credit Rating Agency Limited
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Jibran Cheema

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PACRA Maintains Entity Ratings of FINCA Microfinance Bank Limited | Rating Watch

Rating Type Entity
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch Yes -

The ratings reflect association of FINCA (“the bank”) with a global microfinance organization – FINCA International. This affiliation supports FINCA Microfinance Bank in terms of building a strategy and also in establishing robust systems and controls. FINCA is a mid-tier player in Pakistan’s microfinance sector (End-Dec'19: ~7% share in total gross loan portfolio (GLP) and ~9% share in total microfinance deposits). The bank intends to build a stable and diverse deposit base. However, given the current business scenario, FINCA has also availed borrowings from SBP, under the line of credit (LoC) arrangement, to underpin its funding needs. The bank has stepped into the digital banking domain, however, the mix is currently small. Asset impairment ratio has risen to ~4.7% at End-Dec’19 (End-Dec'18: ~1.9%), which necessitates a cautious management approach. Average loan size of the bank is on the higher side in relation to its peers, which needs to be in check amidst rising industry infection ratio. The bank's GLP has witnessed a dip in its growth pace, owing to tightening market conditions.
Under the current scenario, the nationwide lockdown due to the global pandemic - Covid-19, is certain to cast a significant impact on the whole microfinance industry. The key risks culminating from the current crisis are (i) loss of recovery (ii) halt in fresh disbursement and (iii) probable liquidity stretch. Though SBP’s Relief Packages have come handy to the sector in protecting the credit quality of the players, the out-turn of the situation, and its relative impact on the risk profiles of industry players, including FINCA, 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. Meanwhile, the Ratings are also placed under “Watch” which reflects the need to oversee the risk profile of the bank against unavoidable challenges, going forward.

About the Entity
Kashf Holdings (Pvt.) Ltd. established the bank in 2008. In 2013, FINCA International acquired majority ownership in the bank, through dilution of Kashf Holdings' shareholding. FINCA International has a majority stake of ~86.4%, through FINCA Microfinance Cooperatief U.A; a commercial arm registered in Holland. Kashf Holdings (Pvt) Ltd. holds a ~5.2% stake in the bank. The remaining stake is distributed among i) International Finance Corporation (~4.9%), ii) Triodos Fair Share Fund (~2.7%) and iii) Acumen Fund Pakistan (~0.8%). FINCA, offers a diversified range of financial products and services. The bank operates with a network of ~130 branches. In Sep'19, Mr. Farid Ahmad Khan replaced Mr. Mudassar Aqil as the acting CEO of the bank. Mr. Farid is a seasoned professional, having more than 25 years of global experience in financial services. Previously, he was associated with the asset management wing of a leading commercial bank in Pakistan. Before joining as Chief Executive, he remained a part of the Board of Directors of FINCA, for the past 3 years.

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.