January 14, 2019 (MLN): JCR-VIS Credit Rating Company Limited has upgraded the short-term entity ratings of U Microfinance Bank Limited (UMBL) from ‘A-2’ (A-Two) to ‘A-1’ (A-One). Long-term entity rating and subordinated Tier 2 TFC rating has been reaffirmed at A (Single A) and ‘A-’ (Single A Minus), respectively.
Outlook on the assigned rating is ‘Stable’.
According to the rating agency, the rating action incorporates improvement in funding profile and liquidity buffer of the Bank post injection of Rs. 4b Tier 2 capital by the sponsor, Pakistan Telecommunication Company Limited (PTCL).
Ratings also reflect strong sponsor profile and demonstrated support of PTCL. PTCL has been assigned an entity rating of AAA/A-1+ (Triple A/A-One Plus) and is co-owned by the Government of Pakistan and Etisalat International Pakistan (LLC) (Etisalat).
Improvement in financial profile of UMBL has continued on a timeline basis and is a key rating driver.
Going forward, ratings are dependent on achievement of projected growth plans while improving asset quality indicators, strengthening deposit profile and retaining buffer over regulatory capital requirement.
Over the last three years, advances portfolio has depicted strong growth with the same increasing from Rs. 913m at end-2015 to Rs. 17.4b at end-Dec’2018.
Increase in loan portfolio is a function of improved productivity indicators and expansion in branch network. UMBL targets to open 60 branches in the ongoing year which will allow the Bank to achieve further geographical diversification.
As per JCR-VIS, livestock/crop loan remains the forte of UMBL with the Bank diversifying in microenterprise and related loans. Infection in the financing portfolio has increased on a timeline basis but continues to remain within manageable levels despite significant growth in financing portfolio.
Profit before tax has grown at a CAGR of 201% over the last three years on the back of increase in financing portfolio.
Funding strategy of UMBL entails a mix of deposits and borrowings to finance growth in the bank’s operations. Improvement in deposit profile (including depositor concentration and cost of deposit) remains a key focus area of the management.
Moreover, maintenance of adequate liquidity buffer is considered important till granularity in deposit base is achieved.
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