Lahore, September 15, 2023 (PPI-OT): Amid Covid-19 and floods during CY22, the MFB's coverage against NPLs has declined signalling a potential drag on the sector's equity. Meanwhile, write-offs of the sector also increased. Another factor contributing to the surge in bad loans is the unavoidable rise in the lending rates amidst an exceptionally high-interest rate environment, weakening the repayment capacity of the sector borrowers. On the other side, the funding base of the sector has also been stretched during these distressed times. In this environment, the U Bank has a market share (GLP) of ~13% as at 31st Mar'23. The ratings reflect the association of U Microfinance Bank Limited (U Bank) with Pakistan Telecommunication Company Limited (PTCL), the country's leading Information and Communication Technology Service Provider.

This affiliation supports the Bank in terms of building a strategic congruence alongside establishing robust systems and controls. The Bank's ambitious growth strategy encompasses multi-faceted targets focused on achieving growth in the retail banking segment and developing a digital banking platform. A sizeable book of GOP securities as of June'23: PKR 67.8bln (SPLY: PKR 27.6bln, Dec'22: 111.6bln) in the investment portfolio assisted in maintaining liquidity. The Bank's digital segment is yet to progress a long way to mark its presence in the competitive landscape; the mix is currently small. More than half of the Bank’s portfolio is gold-backed. To build a cushion, the Bank has recognized a sizable subjective provision in order to add a further cushion for absorption of expected loan losses. This provides a strong mitigant against potential credit risk. The non-performing finance stood at PKR 2.17bln as at Jun'23 (Jun'22: PKR 1.04bln, Dec'22: PKR 1.72bln).

The net advances increased by ~51.7% to PKR 77.3bln as at Jun'23 from PKR 50.9bln as at Jun'22 (Dec'22: 60.9bln). The mark-up earned as of Jun'23 stood at PKR 21.1bln (SPLY: PKR 8.4bln) and non-mark-up income as of Jun'23 stood at PKR 1.4bln (SPLY: PKR 0.8bln). However, the net profit of the bank stood at PKR 880mln during 6MCY23 (SPLY: PKR 688mln). The Bank's funding needs are primarily fostered through a growing deposit base, coupled with sizable borrowings. The ratings are constrained by high concentration in deposit base. The equity of the bank stood at PKR 7.4bln at the end 6MCY23 (SPLY: PKR 7.5bln).

The ratings are dependent upon the Bank’s ability to aptly combat the emerging risks under the current scenario in order to keep its business and financial risk profile intact. Stable outlook denotes comfort on business risk and financial risk profile of the bank.

For more information, contact:

Analyst,

The Pakistan Credit Rating Agency Limited (PACRA)

Awami Complex, FB1, Usman Block New Garden Town,

Lahore, Pakistan

Tel: +92-42-5869504-6

Fax: +92-42-5830425

Email: hammad.rashid@pacra.com

Website: www.pacra.com

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