PACRA Maintains the Rating of Mobilink Microfinance Bank Limited | PPTFC | Dec-22

Mobilink Microfinance Bank Limited's ("MMBL" or the "Bank") ratings are supported by its affiliation with Veon, a leading global telecom group, and Jazz, Pakistan’s largest cellular operator. During previous years, the microfinance industry faced substantial headwinds driven by rising NPLs amid a strained economic landscape marked by inflation, high interest rates, and asset quality concerns. These macroeconomic headwinds led to increased credit risk, especially among vulnerable segments such as agriculture and livestock, and negatively affected borrowers’ repayment capacity. In response to the backlog stemming from these challenges, MMBL markedly increased its credit loss provisions. The Bank reported Expected Credit Losses (ECLs) of PKR 10.7bln for 6MCY25, including provisions of PKR 7.4bln related to the nano-lending portfolio. (6MCY24: PKR 5.3bln including PKR 3.6bln for nano-lending portfolio). To address the deteriorating credit environment, VEON Microfinance Holding B.V., the Bank’s majority shareholder, reinforced its support for MMBL’s long-term strategy through a capital injection of USD 35mln (~PKR 10bln) to strengthen the Bank’s capital base. Out of this, USD 15mln (~PKR 4.2bln) was injected in CY24, while USD 5mln (~PKR 1.4bln) was infused in Sep'25. The remaining USD 15mln is expected by the end of CY25. This capital infusion is intended to 1) enhance the Bank’s equity and provide a buffer for its CAR 2) support the growth of its MSME and digital lending portfolio, and 3) facilitate continued investments in digital transformation and technology upgrades. The Bank's business model prioritizes both core and branchless banking, utilizing the sponsor's network and brand name, JazzCash, to accelerate growth in the branchless banking sphere. As of 6MCY25, the Bank captured a market share of 16% in terms of Gross Loan Portfolio (CY24: 18%). During 6MCY25, the Bank's net markup income inclined to PKR 25.5bln (6MCY24: PKR 18.9bln) of which PKR 15.9bln (6MCY24: PKR 10.8bln) stemmed from markup income on nano loans. The incline in markup income on nano loans was fueled by a 25% expansion in nano loans portfolio, reaching PKR 18.3bln in 6MCY25 (6MCY24: PKR 14.6bln). Whereas, the net profitability of the Bank stood at PKR 902mln during 6MCY25 (6MCY24: PKR 948mln). As of 6MCY25, the equity of the Bank stood at PKR 10.3bln with CAR stood at 17%, including a Tier I CAR of 12.4% (CY24: PKR 9.4bln with CAR of 19.16%). Going forward, maintaining the CAR above the mandated regulatory threshold is considered imperative.
The Bank's ratings are contingent upon its capacity to effectively mitigate emerging risks under the prevailing circumstances to preserve its business and financial risk profile.

About the Entity
Mobilink Microfinance Bank Limited, a nationwide microfinance Bank, was established in 2012. The Bank is a subsidiary of Veon Microfinance Holdings B.V, one of the largest telecom groups worldwide. The Board of Directors is composed of seven members, including four non-executive directors, two independent directors, and the CEO. Mr. Haaris Mahmood Chaudhary was appointed as CEO of the Bank on Jan 15, 2025.

About the Instrument
MMBL has issued Rated, Privately Placed Listed, Unsecured, Tier II Term Finance Certificates ("TFC") of PKR 2bln with tenor of 7 years to contribute towards the Bank’s Tier II capital for complying with the MCR and CAR requirement. The profit is being paid semi-annually in arrears at the rate of 6MK+210bps p.a on the basis of the outstanding principal amount. Callable after five years, the call option is subject to SBP compliance on MCR, LR, and CAR. Principal will be repaid in four equal installments starting May 23, 2028. The Bank paid its fifth semiannual markup of PKR 156mln on May 23, 2025.