PACRA Maintains the Entity Ratings of HBL Microfinance Bank Limited

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 Non-Performing Loans (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 infection 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 Net Interest Margin (NIMR) increased by 154% to PKR 14bln (9MCY24: PKR 5.5bln). Non-markup income rose by 30.3% to PKR 1.9bln (9MCY24: PKR 1.5bln), mainly attributable to higher fee and commission income and gains on securities. 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 Capital Adequacy Ratio (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 November 2001 as a nationwide Microfinance Bank and started business in February 2002 after receiving the license from the State Bank of Pakistan. 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 Aga Khan Development Network (AKDN).