PACRA Maintains Rating of NRSP Microfinance Bank Limited | Tier II TFC

The ratings of NRSP Microfinance Bank Limited (the “Bank”) draw support from the demonstrated and reinforced commitment of its parent, National Rural Support Programme (NRSP), which has increased its shareholding to ~81.75% (Dec’24: ~57.40%) following a fresh equity injection of PKR ~2bln during CY25. This capital augmentation has been pivotal in remedying the Bank’s historical capital inadequacy and reinstating compliance with the minimum regulatory Capital Adequacy Ratio (CAR) prescribed by the State Bank of Pakistan. Consequently, the previously assigned Rating Watch stemming from CAR non-compliance has been withdrawn, with the Bank’s CAR improving to 16.59% as at Dec’25, comfortably above the 15% threshold. Pakistan’s microfinance banking landscape has transitioned into a gradual recovery phase post-pandemic. The sector continues to grapple with elevated credit risk, capitalization constraints particularly among MFBs and heterogeneous performance dynamics. The Bank’s gross advances expanded to PKR 43.0bln as at Dec’25 (Dec’24: PKR 38.1bln; +13%), driven by both conventional and Islamic financing portfolios. However, asset quality metrics weakened materially, with non-performing loans rising to PKR 5.99bln (Dec’24: PKR 1.02bln), translating into an elevated infection ratio of ~13.9%. Provisioning coverage remains modest at ~32.5% (CLA: PKR 1.94bln), indicating latent vulnerability to loss crystallization. The earnings profile demonstrated resilience, with net mark-up income increasing to PKR 6.40bln (+53% YoY), supported by asset repricing and a sharp decline in funding costs following the early retirement of the PKR 100bln NBP facility. Despite a credit loss charge of PKR 1.01bln, profitability improved (PAT: PKR 1.35bln; CY24: PKR 1.23bln), reflecting a growth of ~9.8%. The balance sheet reflects significant deleveraging, with borrowings declining to PKR 16.1bln (Dec’24: PKR 112.2bln) alongside a reduction in the investment portfolio (PKR 22.9bln vs. PKR 120.1bln), attributable to the unwind of the NBP-backed PIB structure. Deposits moderated to PKR 52.3bln, primarily due to corporate attrition; however, retail deposits posted strong growth (+28% YoY to PKR 31.5bln), enhancing deposit granularity. The ADR improved to ~78.3%, while liquidity remains adequate, supported by cash balances (PKR 10.8bln) and a diversified investment book.
Going forward, the ratings remain contingent upon the Bank’s capacity to preserve capital buffers, with a need to build additional cushion in its CAR, arrest asset quality slippages, and maintain prudent provisioning coverage. Sustained discipline in risk-adjusted growth and funding diversification will be critical in underpinning the Bank’s evolving credit profile, while the management’s ability to navigate emerging pressures and maintain balance sheet resilience will remain a key rating consideration.

About the Entity
NRSP Microfinance Bank Limited, incorporated in October 2008 under Section 32 of the Companies Act 2017. The Bank is established to promote financial inclusion and poverty alleviation and provides microfinance and related services to low-income and underserved segments. NRSP holds a majority share of ~81.75%, while other shareholders include IFC, PROPARCO, and Acumen Fund (USA).

About the Instrument
In July 2021, NRSP Bank issued an unsecured, unlisted, and subordinated NRSP Microfinance Bank Limited | Tier II TFC ("TFC" or the "Instrument") of PKR 770mln to strengthen its Tier II Capital. This 7-year TFC ranks pari passu with other Tier II instruments and above Additional Tier I instruments and common shares. It is callable after five years with SBP approval and carries a profit rate of 3MK plus 300bps, paid quarterly on the outstanding principal. The terms of the Tier II TFC require that, as per the Lock in Clause, neither profit nor principal, will be payable, if such payments will result in a shortfall in the bank's MCR/CAR or cause an increase in the shortfall.