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The Pakistan Credit Rating Agency Limited
Press Release

Date
30-Apr-20

Analyst
Shazia Afzal
shazia.afzal@pacra.com
+92-42-35869504
www.pacra.com

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

Rating Type Entity
Current
(30-Apr-20)
Previous
(30-Sep-19)
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes -

The ratings capture the aptness of the bank as a growing institution in the Microfinance sector. The loan book is gradually building up, which is primarily constituted of group lending arrangement. The bank's business model incorporates appropriate mitigant controls to keep its risk profile adequate. Resonating with the market conditions, asset infection ratio rose to ~2% as at End-Dec'19 (~0.4% as at End-Dec'18). The design of the lending portfolio represents concentration in the flagship product "Sujag Aurat" (Visionary Women), focused on women entrepreneurship and financial inclusion. The bank's funding needs are currently being fueled through a mixture of internal and external sources. A major share of the funding has been obtained from State Bank of Pakistan on a partially low cost. Deposit mobilization still remains low. The bank has presence in Sindh with plans to go national. A risk-averse approach towards expansion is the key essential, with funds being raised with a cautious approach. The ratings draw comfort from the bank's association with the Government of Sindh. The financial risk profile is reflected by sanguine liquidity, adequate profitability and low investment in non-earning assets.
Pitching on satisfactory past performance indicators, the bank's futuristic approach also displays a stable outlook. However, the current scenario of 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, 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 placed under “Watch” particularly to reflect on the challenges arising from COV-19 outbreak and subdued economic activity.

About the Entity
Sindh Microfinance Bank was incorporated with the Securities and Exchange Commission of Pakistan (SECP) in 2015 and commenced operations in May, 2016. The bank is a wholly-owned subsidiary of Sindh Bank. The head office of the bank is located in Karachi.
Board of Directors comprises of seven members; two members are representative of the Sindh Bank. Mr. Shams-ud-din Khan is the Chairman of the Board. He was formerly associated with Pak-Kuwait Investment Company (PKIC) and has an overall experience of over ~40 years. Mr. Shoaib Arif, the CEO, is a microfinance industry veteran having an overall experience of more than ~20 years. He is accompanied by a team of professionals.

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.