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  • APRIL 2015

    The Pakistan Credit Rating Agency Limited

    NEW [APR-15]





    Long Term BBB+ BBB


    Short Term A3 A3


    Outlook Stable Positive 4. REGULATORY AND SUPPLEMENTARY



  • The Pakistan Credit Rating Agency Limited



    April 2015 www.pacra.com


    (APRIL 2015)



    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

    towards MFBs.

    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



    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

    Earning Assets

    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%

    Capital Adequacy

    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%

    Intermediation Efficiency

    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


    Financials [Summary]



  • The Pakistan Credit Rating Agency Limited


    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.

  • Rated Entity

    Name of Rated Entity Apna Microfinance Bank Limited

    Sector Microfinance

    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

    rehan.alam@pacra.com saira.rizwan@pacra.com

    (92-42-35869504) (92-42-35869504)

    Rating Team Statement

    Disclaimer PACRA maintains principle of integrity in seeking rating business.

    Conflict of Interest



    Probability of Default (PD)

    PACRA monitors all the outstanding ratings continuously and any potential change therein due to any event associated with the rated entity/ issuer, the security

    arrangement, the industry etc, is disseminated to the market, in a timely and effective manner, after appropriate consultation with the entity/issuer.

    Regulatory and Supplementary Disclosure

    Related Criteria and Research

    Rating is an opinion on relative credit worthiness of an entity or debt instrument. It does not constitute recommendation to buy, hold or sell any security. The rating

    team for this assignment does not have any beneficial interest, direct or indirect in the rated entity/instrument.

    PACRA has used due care in preparation of this document. Our information has been obtained directly from the underlying entity and public sources we consider to

    be reliable but its accuracy or completeness is not guaranteed. PACRA shall owe no liability whatsoever to any loss or damage caused by or resulting from any error

    in such information.

    PACRA, the analysts involved in the rating process, and members of its rating committee do not have any conflict of interest relating to the credit rating done by


    The analysts involved in the rating process do not have any interest in a credit rating or any of its family members has any such interest.

    The analysts and members of the rating committees including the external member members have disclosed all the conflict of interest, including those of their family

    members, if any, to the Compliance Office PACRA.

    The analysts or any of its family members do not buy or sell or engage in any transaction in any security which falls in the analyst's area of primary analytical

    responsibility. This is, however, not applicable on investment in securities through collective investment schemes. PACRA has established appropriate policies

    governing investments and trading in securities by its employees

    PACRA may provide consultancy/advisory services or other services to any of its clients or to any of its clients' associated companies and associated undertakings that

    is being rated or has been rated by it. In such cases, PACRA has adequate mechanism in place ensuring that provision of such services does not lead to a conflict of

    interest situation with its rating activities.

    PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on

    PACRA's opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity and independence of its ratings. Our

    relationship is governed by two distinct mandates i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and ii) fee mandate - signed

    with the payer, which can be different from the entity.

    PACRA ensures that the credit rating assigned to an entity or instrument should not be affected by the existence of a business relationship between PACRA and the

    entity or any other party, or the non-existence of such a relationship

    Where feasible and appropriate, prior to issuing or revising a rating, PACRA informs the issuer of the critical information and principal considerations upon which a

    rating will be based and provide the opportunity to clarify any likely factual misperception or other matter that PACRA would wish to be made aware of in order to

    produce a fair rating. PACRA duly evaluates the response. Where in a particular circumstance PACRA has not informed the entity/issuer prior to issuing or revising a

    rating, it informs the entity/issuer as soon as practical thereafter;

    None of the information in this document may be copied or otherwise reproduced, stored or disseminated in whole or in part in any form or by any means whatsoever

    by any person without PACRAs written consent. PACRA reports and ratings constitute opinions, not recommendations to buy or to sell.

    PACRA's Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e, probability). PACRA's transition

    studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA's Transition

    Study available at our website. (www.pacra.com). However, actual transition of rating may not follow the pattern observed in the past.


    PACRA reviews all the outstanding ratings on annual basis or as and when required by any stakeholder (including creditor) or upon the occurrence of such an event

    which requires to do so.

    PACRA initiates immediate review of the outstanding rating(s) upon becoming aware of any information that may be reasonable be expected to result in any change

    (including downgrade) in the rating.

    Reporting of Misconduct

    PACRA has framed and implemented whistle-blower policy encouraging all employees to intimate the compliance officer any unethical practice or misconduct

    relating to the credit rating by another employees of the company that came to his/her knowledge. The Compliance Officer reports to the BoD and SECP


    PACRA has framed a confidentiality policy to prevent; abuse of the non-public information by its employees and other persons involved in the rating process, sharing

    and dissemination of the non-public information by such persons to outside parties


    Apna Coversheet Summary Report-Mar15.pdfApna Bank-Summary Report-2015.pdfApna Bank-Financials-CY14.pdfCherat_Rating Scale_FY15.pdfDisclosure Page_Dec 14.pdf


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