PACRA Maintains the Rating of HBL Microfinance Bank Limited | Tier 2 Capital TFC | PKR 1.5bln | Mar-24

HBL Microfinance Bank Limited ("HBL MfB" or the "Bank") is primarily owned by Habib Bank Limited (HBL), Pakistan's largest commercial bank, which is owned by the Aga Khan Fund for Economic Development, a prominent agency of Aga Khan Development Network (AKDN), a global organization that aims to enhance the quality of life in marginalized communities. The Bank's ratings reflect a strong financial profile, strengthened by substantial support from its sponsors. HBL MfB remains a key player in the microfinance banking sector. At end-Sep’25, the Bank's gross advances reflected a 7.5% increase and stood at PKR 97.1bln (end-Dec’24: PKR 90.3bln). While the NPLs were reported at PKR 7.3bln (end-Dec’24: PKR 7.2bln). These higher NPLs were mainly attributed to last year’s credit crunch in South Punjab amid the wheat price crash crisis. Consequently, the Bank's infection ratio stood at 7.5% (end-Dec’24: 8%). The management is proactively addressing this concern, and growth in injection has reduced significantly. The funding is fueled by deposits, supported by strong contributions from savings and term deposits, which grew by 6.4% to PKR 130.5bln (end-Dec’24: PKR 122.6bln). During 9MCY25, the NIMR increased by 154% to PKR 14bln (9MCY24: PKR 5.5bln). While the credit loss allowance (net of write-off recovery) decreased to PKR 4.6bln (9MCY24: PKR 5.4bln). Overall, the Bank reported a profit before tax of PKR 1.3bln (9MCY24: loss before tax of PKR 6.5bln), marking a strong turnaround in performance. The improvement in profitability reflects effective optimization of earning assets, disciplined cost management, enhanced balance sheet efficiency, and effective delinquency management. The Bank’s equity base increased to PKR 18.3bln (end-Dec’24: PKR 15.5bln), supported by a PKR 2.0bln injection in share capital by the parent bank (the HBL). The CAR also improved to 19.6% (end-Dec’24: 17.1%). To strengthen risk resilience amid higher NPLs, the Bank has adopted a cautious lending approach while entering into multiple risk-sharing arrangements, prominently being an unfunded 50% credit risk-sharing facility amounting to USD 80mln with the International Finance Corporation (IFC) for a period of six years. Specialized risk-sharing arrangement with the Economic Transformation Initiative Gilgit Baltistan (ETIGB) has also been entered into, amounting to PKR 1bln, and the Bank is also in negotiations with NCGCL. Furthermore, scaling down the bullet portfolio, shifting toward large ticket-size loans, and anticipating sustained improvement in funding costs in line with the current trajectory of the policy rate are key factors towards sustainability.
The ratings remain contingent on the Bank’s ability to effectively navigate emerging risks in the prevailing economic environment while maintaining the strength of its business and financial risk profile.

About the Entity
HBL MfB was incorporated in Nov'01 as a nationwide Microfinance Bank and started business in Feb'02 after receiving the license from the SBP. The Bank is predominantly owned by HBL with a shareholding of 90.83% as at end-Sep25, followed by the Aga Khan Agency for Microfinance (AKAM) at 5.51%, the Aga Khan Rural Support Programme (AKRSP) at 2.03%, and the Japan International Cooperation Agency (JICA) at 1.63%. HBL, AKAM, and AKRSP operate under the umbrella of the AKDN.

About the Instrument
In Mar'24, the Bank issued privately placed, unsecured, subordinated, rated Tier 2 Capital Term Finance Certificates ("TFCs" or the "Instrument") of PKR 1,500mln with a 10-year tenor. Profit is paid semi-annually at 6MK + 200 bps on the outstanding principal, which is repayable at maturity. Payments rank below all liabilities, including deposits, but pari passu with other Tier II and senior to additional Tier I TFCs. Early redemption needs SBP approval, and no payments are allowed if they breach the Bank’s MCR or CAR.