PACRA Updates the Rating of NRSP Microfinance Bank Limited | Tier II TFC | RW & Developing Outlook

NRSP Bank reflects a good presence across the country with about 150 branches in and around 10 regions. The geographical spread provides strength to the bank. NRSP Bank has been serving an increasing number of customers and has cemented its position in the industry amongst the top players of the microfinance sector with ~6.7% share in the total gross loan portfolio as of Mar'22. The Bank’s GLP witnessed a slight decline. Asset quality was impaired significantly, as the deferred book to total GLP was sizeable. Furthermore, considering the devastation of the massive flood, since Jul'22 the NPLs of the bank are expected to increase significantly, due to which the profitability of the Bank may come under pressure. Immediate financial support is required for which tangible steps are being taken. Timing is crucial to help the Bank remain current on its financial obligation to the bondholders. As challenges in recovery and markup suspension would arise. The bottom line of the Bank increased, depicting a profit of PKR 138mln during 1QCY22 (Loss in CY21:PKR 1,232mln). Management’s commitment to recoup the asset health and consolidate the Bank's position within the stipulated time is an acute necessity. However, sponsor support through equity injections is essential. The sponsors have extended support, both in technical and financial forms, to the Bank historically with an expression of explicit intention from NRSP to provide financial support in form of capital injection, as and when required.
The ratings are dependent upon the out-turn of management’s plans to steer the risk profile of the bank towards an improved trajectory. Timely sponsor support is imperative. The ratings would also monitor the impact of technological advancement on the operational and risk efficacy of the Bank and reflect the need to oversee the risk profile of the Bank against unavoidable challenges, going forward.

About the Entity
NRSP Microfinance Bank Limited was incorporated as a public limited unlisted Company in October 2008 under Section 32 of the repealed Companies Ordinance, 1984 (now Companies Act2017). The Bank obtained a license from SBP on February 18, 2009 to operate, on a nationwide basis, as a microfinance bank under Microfinance Institutions Ordinance, 2001. The Bank was established to mobilize funds for providing microfinance banking and related services to low-income, underserved and marginalized segments of the society for mitigating poverty and promoting social welfare through providing access to financial markets at the micro level. National Rural Support Programme (NRSP) is a majority shareholder with a shareholding of ~57%. Other institutional shareholders include International Finance Corporation (IFC), PROPARCO and Acumen Fund USA.

About the Instrument
NRSP Bank issued a rated, unlisted, unsecured, and subordinated TFC-II in Jul-21 of PKR 770mln to contribute towards the Bank's Tier II Capital. The instrument is unsecured and subordinated as to payment of principal and profit to other indebtedness of the Bank, including deposits, but will rank pari passu with other Tier II instruments and superior to Additional Tier I instruments and common shares. The tenor of the instrument is 07 years and callable on or after five years with prior approval of SBP. The profit rate is 3MK plus 300bps and is being paid quarterly in arrears on the outstanding principal.