APNA MICROFINANCE BANK LIMITED - Pakistan Bank...The Pakistan Credit Rating Agency Limited MICROFINANCE APNA MICROFINANCE BANK (APNA BANK) April 2015 RATING ANALYSES
Post on 27-May-2018
The Pakistan Credit Rating Agency Limited
1. RATING ANALYSES
Long Term BBB+ BBB
2. FINANCIAL INFORMATION
Short Term A3 A3
3. RATING SCALE
Outlook Stable Positive 4. REGULATORY AND SUPPLEMENTARY
APNA MICROFINANCE BANK LIMITED
The Pakistan Credit Rating Agency Limited
APNA MICROFINANCE BANK (APNA BANK)
April 2015 www.pacra.com
APNA MICROFINANCE BANK
LIMITED (APNA BANK)
Microfinance Industry: Pakistan Microfinance Industry (MFI) comprises 45 microfinance institutions including 10 microfinance banks (MFBs). MFI outreach hovers
around 3.2mln active borrowers, representing low penetration (estimated market
potential: 27mln clients). MFBs dominate the sector, representing 55% of total Gross
Loan Portfolio (PKR 66,761mln) and 38% of active borrowers at end-Dec14. Lately,
SBP has further incentivized [60% guarantee under MFCG] funds channelization
Performance: During CY14, earning assets of the bank witnessed a healthy growth of ~34% YoY. Spread improved to 11.6% (CY13: 8.7%) on the back of high asset yield.
Consequently, Apna Banks net mark-up income increased. The banks other income rose
on account of (i) amortizing grants worth PKR 15mln received from SBP to improve the
technological infrastructure and innovate rural & agricultural finance, and (ii) increase in
fee & commission income (CY14: PKR 9.5mln; CY13: PKR 5.3mln) from higher loan
disbursements and ATM use. The expansion of branch network has lead to increase in
operational cost. With PKR 6mln reversal, the provisioning expense reduced (CY14:
PKR 20mln, CY13: PKR 30mln). The improved performance particularly in 2nd and 4th
quarter of CY14 enabled the bank to achieve breakeven in CY14. In line with the banks
nationwide expansion, the operational costs would rise. Hence, sustainability in
bottomline remains to be seen.
Business Strategy: The management intends to pursue aggressive growth strategy. 12 new branches are planned to be opened in the province of Sindh by end-Jun15. The
business volumes are expected to increase with expanding scale of operations. In this
regard, the key development is approval of right issue to achieve regulatory capital
requirement for obtaining national level license. SBP approval has been sought and the
process is expected to complete in 2QCY15. The bank intends to strengthen its lending
portfolio through provision of agri-based micro-enterprise loans. Planned penetration into
Punjab will open avenues for deposit mobilization. However, given the highly
competitive MFBs market the bank remains prone to innate constraints of mobilizing
new deposits. At the same time, effective implementation of business strategy and
building a cohesive management team remains critical.
Asset Mix: During CY14, Apna Banks Gross Loan Portfolio increased by more than two-fold (CY14: ~PKR 799mln). The growth emanated from penetration into provincial
markets and extension of micro-enterprise loans. Disbursement of micro-enterprise loans
also led to diversification in the product mix. Meanwhile, the proportion of secured loans
increased (end-Dec14: 36%; end-Dec13: 23%) during the year.
Asset Quality: Owing to hefty rise in loan portfolio, the banks infection ratio reduced (end-Dec14: ~13%, end-Dec13: ~27%), though remained significantly higher
than the industry (1.3% at end-Dec14). The absolute NPLs increased from last years
level. The bank intends to improve it asset quality for which number of initiatives
including logical linking of repayments with borrowers cashflows is a key development.
Nevertheless, seasoning of new loans is yet to be seen.
Funding & Liquidity: During CY14, Apna Bank aggressively mobilized deposits as evident by ~57% growth (end-Dec14: PKR 1,193mln; end-Dec13: PKR 762mln). A large
share of deposits was mobilized during last quarter, a factor of new branches addition.
Major growth was witnessed in time deposits. Consequently, CASA mix declined (end-
Dec14: 42%, end-Dec13: 50%). Top-50 depositors concentration improved to 26% at
end-Dec 14, as against 44% at end-Dec13. The liquidity profile remained healthy as reflected by liquid-assets-to-deposits and borrowings ratio of 65% at end-Dec14.
Capital: The Banks CAR at end-Dec14 was reduced to 48% from 81% in corresponding period. Fresh capital injection is under process. This is likely to strengthen
the risk absorption capacity of the bank.
Profile: Apna Microfinance Bank Limited, listed on Karachi Stock Exchange, was established under the Microfinance Institution Ordinance 2001. It started operations in
2005. With its Head Office located in Karachi, the bank currently operates in Sindh. The
existing group of sponsors, acquiring control in early 2012, comprises entrepreneurs.
United Insurance Company (UIC) part of United International Group (UIG) has ~31%
shareholding in the company. UIG is led by its Founder and Chairman; Mr. Mian M. A.
Shahid - the single largest shareholder.
Governance and Management: The overall control of the bank vests in a seven member BoD. All board members are shareholders of the bank with two of them in
executive roles, including the CEO Saleem Sheikh. Besides the CEO, Mr. Farooq the
Executive Director with four decades of financial sector experience spearheads the
banks operations. The management personnel, carries extensive experience in the
banking industry; though relatively new to the bank.
Apna Banks ratings reflect the
sponsors demonstrated commitment
in providing requisite support to
expand its operations. A right issue
(PKR 550mln) is in the process. This,
while supporting risk absorption
capacity, would enable Apna to
operate at National level. The
management is eyeing expansion in
Punjab the core geography of the
sponsors mainly to tap potential
agricultural borrowers. Successful
materialization of this strategy should
lead to improving bottom-line. Apna
has extended its outreach beyond
Karachi to interior Sindh in CY14;
bringing significant growth to the
banks lending portfolio. However,
achieving good asset quality
portfolio at risk higher than sector
norm is the key challenge. This
continues to restrain profitability.
With targeted growth in risk assets,
strengthening of related systems and
controls is important. Besides, high
turnover in management team needs
KEY RATING DRIVERS
The banks ratings are dependent on
(i) sustainable profitability to avert
pressure on risk absorption (ii)
building of cohesive management
team to achieve desired performance
output, (iii) bringing down infection
at par with industry, and (iv)
improvement in technological
infrastructure to bring operational
efficiency. At the same time,
regulatory compliance for better
governance is important.
The Pakistan Credit Rating Agency Limited
Apna Microfinance Bank Limited Financials [Summary]PKR mln
BALANCE SHEET 31-Dec-14 31-Dec-13 31-Dec-12
Total Finances 737 310 189
Investments 152 231 76
Deposits with Banks 518 505 396
1,406 1,046 661
Non Earning Assets
Non-Earning Cash 78 63 46
Net Non-Performing Finances 69 69 11
Fixed Assets & Others 206 136 96
353 267 154
TOTAL ASSETS 1,759 1,313 815
Interest Bearning Liabilities
CASA 500 379 354
Time Deposits 694 383 114
1,194 762 468
Non Interest Bearing Liabilities 23 34 37
TOTAL LIABILITIES 1,216 796 505
EQUITY (including revaluation surplus) 511 505 309
Deferred Grants 32 12 -
TOTAL LIABILITIES & EQUITY 1,759 1,313 815
INCOME STATEMENT 31-Dec-14 31-Dec-13 31-Dec-12
Annual Annual Annual
Interest / Mark up Earned 239 139 50
Interest / Mark up Expensed (79) (52) (17)
Net Interest / Markup revenue 160 87 33
Other Operating Income 10 6 2
Total Revenue 170 93 35
Other Income 24 9 1
Non-Interest / Non-Mark up Expensed (166) (125) (85)
Pre-provision operating profit 28 (23) (49)
Provisions (20) (30) (0)
Pre-tax profit 9 (52) (49)
Taxes (3) (1) (1)
NET INCOME 6 (53) (49)
Ratio Analysis 31-Dec-14 31-Dec-13 31-Dec-12
ROE 1.2% -13.1% -19.1%
Cost-to-Total Net Revenue 85.4% 122.1% 234.2%
Equity/Total Assets 29.0% 38.6% 38.0%
Capital Adequacy Ratio as per SBP 48.0% 81.0% 90.0%
Loan Loss Coverage
Non-Performing Advances /Gross Advances 12.7% 26.8% 12.4%
Loan Loss Provisions / Non-Performing Advances 32.1% 24.9% 26.2%
Funding & Liquidity
Liquid Assets / Deposits and Borrowings 65.1% 109.9% 127.5%
Advances / Deposits 70.2% 52.7% 43.7%
CASA deposits / Total Customer Deposits 41.9% 50.0% 75.7%
Asset Yield 19.8% 17.2% 11.6%
Cost of Funds 8.2% 8.5% 7.0%
Spread 11.6% 8.7% 4.6%
Branches 17 11 11
Apna Microfinance Bank Limited
The Pakistan Credit Rating Agency Limited
STANDARD RATING SCALE & DEFINITIONS
LONG TERM RATINGS SHORT TERM RATINGSAAA Highest credit quality. Lowest expectation of credit risk.
Indicate exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
A1+: The highest capacity for timely repayment.
A1:. A strong capacity for timely repayment.
A2: A satisfactory capacity for timely repayment. This may be susceptible to adverse changes in business, economic, or financial conditions.
A3: An adequate capacity for timely repayment. Such capacity is susceptible to adverse changes in business, economic, or financial conditions.
B: The capacity for timely repayment is more susceptible to adverse changes in business, economic, or financial conditions.
C: An inadequate capacity to ensure timely repayment.
Very high credit quality. Very low expectation of credit risk. Indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
High credit quality. Low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be vulnerable to changes in circumstances or in economic conditions.
Good credit quality. Currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity.
Speculative. Possibility of credit risk developing. There is a possibility of credit risk developing, particularly as a result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met.
Highly speculative. Significant credit risk. A limited margin of safety remains against credit risk. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment.
High default risk. Substantial credit risk CCC Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. CC Rating indicates that default of some kind appears probable. C Ratings signal imminent default.
D Obligations are currently in default.
Rating Watch Alerts to the possibility of a rating change subsequent to, or in anticipation of, a) some material identifiable event and/or b) deviation from expected trend. But it does not mean that a rating change is inevitable. Rating Watch may carry designation Positive (rating may be raised, negative (lowered), or developing (direction is unclear). A watch should be resolved with in foreseeable future, but may continue if underlying circumstances are not settled.
Outlook (Stable, Positive, Negative, Developing) Indicates the potential and direction of a rating over the intermediate term in response to trends in economic and/or fundamental business/financial conditions. It is not necessarily a precursor to a rating change. Stable outlook means a rating is not likely to change. Positive means it may be raised. Negative means it may be lowered. Where the trends have conflicting elements, the outlook may be described as Developing.
Suspension It is not possible to update an opinion due to lack of requisite information. Opinion should be resumed in foreseeable future. However, if this does not happen within six (6) months, the rating should be considered withdrawn.
Disclaimer: PACRA's ratings are an assessment of the credit standing of entities/issues in Pakistan. They do not take into account the potential transfer / convertibility risk that may exist for foreign currency creditors. PACRA's opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the securitys market price or suitability for a particular investor.
Withdrawn A rating is withdrawn on a) termination of rating mandate, b) cessation of underlying entity, c) the debt instrument is redeemed, d) the rating remains suspended for six months, or e) the entity/issuer defaults.
Credit rating reflects forward-looking opinion on credit worthiness of underlying entity or instrument; more specifically it covers relative ability to honor financial obligations. The primary factor being captured on the rating scale is relative likelihood of default.
Name of Rated Entity Apna Microfinance Bank Limited
Type of Relationship Solicited
Purpose of the Rating Independent Risk Assessment
Rating History Notification Date Long Term Short Term Outlook Action
7-Apr-15 BBB+ A3 Stable Upgrade
12-May-14 BBB A3 Positive Maintained
15-May-13 BBB A3 Positive Maintained
30-Apr-12 BBB A3 Positive Maintained
23-May-11 BBB A3 RW Maintained
Methodology: Microfinance Institution
Rating Analysts Rehan Alam Saira Rizwan
Rating Team Statement
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Apna Coversheet Summary Report-Mar15.pdfApna Bank-Summary Report-2015.pdfApna Bank-Financials-CY14.pdfCherat_Rating Scale_FY15.pdfDisclosure Page_Dec 14.pdf