PACRA Maintains Entity Ratings of First Punjab Modaraba

The ratings of First Punjab Modaraba ("FPM" or "the Modaraba") reflect its strategic association with The Bank of Punjab ("BoP"), which remains the principal sponsor through Punjab Modaraba Services (Pvt.) Limited, the Modaraba's management company. FPM is a listed, perpetual, and multi-dimensional Modaraba engaged in Shariah compliant financing activities through Diminishing Musharakah, Ijarah, and Murabaha arrangements. During CY25, the Modaraba continued to operate under a challenging business environment marked by subdued portfolio growth, pressure on spreads, and the continued impact of legacy non performing exposures. Nonetheless, the sponsor's commitment toward preserving the Modaraba's franchise and strengthening its capital structure remained a key rating consideration. Pakistan's Islamic finance industry continues to benefit from growing customer preference for Shariah compliant financial solutions and supportive regulatory initiatives aimed at increasing Islamic financial penetration. At the same time, the Modaraba sector remains exposed to heightened competition from Islamic banks and Islamic banking windows with stronger funding franchises and larger balance sheets. Consequently, sector participants increasingly rely on niche market positioning, operational efficiency, prudent risk management, and sponsor support to sustain competitiveness. Within this context, FPM's affiliation with BoP provides an important institutional advantage and enhances its funding flexibility. The Modaraba's governance framework is supported by an experienced Board of Directors and board committees, including the Audit, Human Resource, and Risk Management Committees. The financial profile remains constrained by weak earnings generation and accumulated losses; however, a notable strengthening in capitalization was observed during CY25. Total income declined to PKR 251.5mln from PKR 404.7mln in CY24, while the net loss increased to PKR 172.9mln from PKR 94.4mln, primarily due to pressure on financing spreads and elevated funding costs. During CY25, the Modaraba successfully redeemed PKR 1,485mln of redeemable capital and repaid PKR 500mln of subordinated funding. Simultaneously, BoP injected fresh subordinated funds of PKR 2,000mln, resulting in a significant strengthening of the equity base to PKR 1,535.4mln compared to PKR 208.0mln at end CY24. Liquidity also improved, with cash and bank balances increasing to PKR 81.5mln from PKR 23.1mln. The financing portfolio continues to carry elevated legacy delinquent exposures, while accumulated losses stood at PKR 1,023.0mln at end CY25 and remain a key rating constraint. The March 2026 quarter reflects early signs of stabilization following the recapitalization. Management's strategic focus remains on recoveries, asset quality preservation, cost management, and selective growth in lower-risk financing segments. The business strategy also includes diversification of revenue streams through increased contribution from fee-based and service-oriented activities. The Stable outlook incorporates expectations of continued sponsor support from BoP, improved capitalization and liquidity, and the effective execution of management's strategic initiatives.
The ratings remain dependent upon successful execution of the revised business strategy, sustained sponsor support, improvement in recoveries and portfolio quality, and the Modaraba's ability to restore sustainable profitability. Consistent utilization of the enhanced capital base for business generation while maintaining asset quality would be viewed positively.

About the Entity
First Punjab Modaraba ('the Modaraba'), established in 1992, is a perpetual and multi-dimensional Modaraba listed on the Pakistan Stock Exchange. Punjab Modaraba Services (Pvt.) Limited, a wholly owned subsidiary of The Bank of Punjab (BoP), is the Management Company of the Modaraba and holds a stake of ~54% stake in the Modaraba. General Public holds a stake of ~ 44%. While the remaining ~2% is held by financial institutions. Mr. Ijaz Ul Rehman is the Chairman. While, Mr. Asim Jahangir Seth is the CEO of the Modaraba. Mr. Shiraz Butt is the Chief Operating Officer and Company secretary, whereas Mr. Zeeshan Ahmed is the CFO of the Modaraba.