Apna Microfinance Bank Limited

CREDIT RATING REPORT | May-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
15-May-25 BB A4 Negative Downgrade -
26-Jul-24 BBB- A4 Negative Maintain YES
27-Jul-23 BBB- A4 Negative Downgrade YES
29-Apr-23 BBB+ A3 Negative Maintain YES
30-Apr-22 BBB+ A3 Negative Maintain YES
About the Entity

Apna Microfinance Bank, listed on Pakistan Stock Exchange, was established under the Microfinance Institution Ordinance 2001. It started operations in 2005. Apna is a small-tier player in Pakistan’s microfinance sector with ~2.7% share as of Dec’24 in terms of GLP. The Bank has 106 business locations comprising 105 branches and 1 service centers. The overall control of the Bank vests in a nine-member board. Mr. Muhammad Akram Shahid is the Chairman of the board. RSM Avais Hyder Liaquat Nauman & Co. Chartered Accountants are the external auditors of the company. The auditor has reported material uncertainty related to events and conditions which may cast significant doubts on the Bank's ability to continue as a going concern.

Rating Rationale

The rating downgrade of Apna Microfinance Bank (the “Bank”) reflects: 1) hefty operational losses, 2) continuous and sizeable equity erosion since December 2021, 3) persistent non-compliance with CAR for several years, and 4) sustained high PAR, currently at 42.4%. The Bank is one of a few MFBs that are struggling to survive. The Bank recorded a loss of Rs. 3,100 million for the year (CY23: Rs. 3,594 million). By year-end, its accumulated losses reached Rs. 14,284 million (CY23: Rs. 10,973 million), resulting in negative net assets of Rs. 9,433 million (CY23: Rs. 6,641 million). The non-performing advances were primarily a result of the severe economic downturn caused by the Covid-19 pandemic, floods, and hyperinflation. The Bank has failed to meet the Minimum Capital Requirements (MCR) and Capital Adequacy Ratio (CAR) as outlined in the Prudential Regulations for Microfinance Banks, 2014. These circumstances significantly elevated the risk profile of the Bank and potentially impacting its business. The sponsors continue to inject equity to support the Bank, however, the quantum is not sufficient to address the problems adequately. The management is implementing a comprehensive and multi-dimensional strategy to address the financial and operational challenges confronting the Bank. The management is also actively working on recovering these advances. The successful execution may mitigate the negative factors currently affecting the Bank. Going forward, following the Government's reduction in policy rates, the Bank's cost of deposits (COD) has decreased. However, the full impact of this reduction will be realized in the coming periods.

Key Rating Drivers

The management is actively implementing strategies to increase corporate customer deposits in current accounts by offering attractive incentives, launching innovative products, and improving digital outreach, which would remain imperative to the assigned rating.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Apna Microfinance Bank Limited

rating analysis

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Profile
Structure

Apna Microfinance Bank Limited (“the Bank”) was incorporated in May 2003 as a Public Limited Company under the Companies Act, 2017 (formerly Companies Ordinance, 1984). The Bank is listed on Pakistan Stock Exchange (PSX) since the commencement of its operations in 2005, under the Microfinance Institution Ordinance, 2001.


Background

In June-15, the Bank was granted a national-level license after completion of regulatory capital requirements. Presently, the Bank operates with a network of 111 branches spread across Pakistan.


Operations

The Bank offered a wide variety of lending products customized according to the needs of various communities. These include loans for farmers, Livestock loans, Agri-loans, House loans, Tractor Loans, Salary loans, and Business loans. However, currently, new disbursements are at a halt.


Ownership
Ownership Structure

The Bank is a part of the United International Group (UIG), 46.5% shareholding, with a pre-dominant ownership stake held by Mr. Mian Shahid through his group companies, especially United Track and United Software. The later two companies hold 22% of the Banks stake collectively.


Stability

The overall shareholding structure of the Company remains stable since the last rating review.


Business Acumen

United International Group (UIG) has its foothold in various business ventures. The group has interests in microfinance, insurance, tracking business, information technology, agriculture, and business consultancy. UIG is led by its Founder and Chairman – Mian Akram Shahid – the single largest shareholder.


Financial Strength

The United group has expanded its footing in diversified business avenues with a sizable portfolio of strategic investments. The group is involved in different lines of business-like insurance, banking, technology, tracking, health care, and risk advisory. All these companies are performing well in their respective sectors which is also reflected in their financial performance.


Governance
Board Structure

The overall control of the Bank vests with nine members. The Bank has two independent directors on the Board as per the Prudential Regulations requirement for MFBs. The board has four sub-committees; (i) Audit Committee (ii) Executive Committee (iii) Risk and Compliance Committee, (iv) Monitoring Committee, and (v) HR and Remuneration Committee.


Members’ Profile

The board of the Bank has nine members and Mr. Muhmmad Akram Shahid is the Chairperson of the board. There are two Non-Independent Directors, six Non-Executive Directors, one Executive Director, a female Director who is among the two Non-Independent Directors. All the members has divers experiance in different sectors including banking, import/export, sales, and Insurance.


Board Effectiveness

The Board met quarterly to ensure efficiency and effectiveness of operations.


Transparency

The audit committee of the Bank comprises five members and is chaired by an independent director, Mr. Abdul Aziz Khan. A separate Internal Audit Department is in place which reports independently to the Audit Committee. RSM Avais Hyder Liaquat Nauman & Co. Chartered Accountants are the external auditors of the Bank. The auditors have added emphasis of matter paragraph in the audit report for the year 2024 and have raised material uncertainty relating to going concern. Furthermore, the audit report adds that the management is executing a comprehensive, multi-faceted plan to tackle the financial and operational challenges facing the Bank.


Management
Organizational Structure

A total of seven department heads report directly to the President. The SAM Department with reporting line to the COO has been established as collateral to the disbursements to strengthen the recovery ratio.


Management Team

The management positions are held by qualified professionals to strengthen departmental results. These included the Head of SAM, the Head of Business, and the Head of Product Development. Mr. Nazish Ali is the CEO of the Bank and all the HODs report to the CEO.


Effectiveness

Six Management Committees are in place namely i) Asset Liability Management Committee (ALCO) ii) Credit Committee, iii) Management Committee, iv) Compliance Committee, v) HR Committee, and vi) IT Steering Committee to ensure operational efficiency and efficient decision-making.


MIS

To enhance data safety, the management improved the data collection and management center and acquired a program for compliance handling as well.


Risk Management framework

As a consequence of the SBP inspection (as stated above), the Bank envisaged betterment in risk management through improvement in the overall control environment by revisiting and devising risk management policies and control procedures to manage its credit risk.


Technology Infrastructure

Apna Bank uses Auto-banker III (ABIII) as its core-banking software. Developed by a local vendor, ABIII provides flexibility to consolidate records based on branch, repayment behavior, classification of loan, and borrower profile.


Business Risk
Industry Dynamics

The Microfinance Banking sector (" Sector ") continues to grapple with long-standing challenges in the form of declined asset quality, negative profitability and weakened Capital Adequacy Ratio (CAR) mainly driven by the historical impact of the COVID-19 pandemic in CY20 to the hazard of floods in Jul-Aug'22 followed by the economic slowdown in CY23 along with very high inflation in the past couple of years, the Sector's resilience has been repeatedly tested. During 6MCY24, the deposit base of MFBs increased by 6.7% to stand at PKR 637bln. The GLP of the Sector recorded a marginal uptick of 1.4% to stand at PKR 414bln. Whereas, the infection ratio jumped to 10.5% from 6.7% in CY23. The reported loss of the Sector soared to PKR 12.1bln from PKR 8.1bln in CY23. Consequently, the Sector 's equity base declined to PKR 22.6bln from PKR 37.4bln, resulting in the declined CAR of the Sector clocking in at 5.7% from 7.6% in CY23 falling far below the regulatory threshold of 15%. These factors cumulatively raise serious and persistent concerns about the performance of the Sector. Furthermore, during the year there was a significant credit crunch in South Punjab, coupled with intense wheat price crash, which adversely impacted the lending portfolio in the region.


Relative Position

At end-Dec24, the Bank's market share remained around 2% in terms of the Gross Loan Portfolio (CY23: 4.7%).


Revenue

The markup earned witnessed an increase to PKR 2.8bln (CY23: PKR 2.5bln;) attributable to a higher contribution from advances to stand at PKR 2.1bln (CY23: PKR 1.9bln). The markup expenses also recorded an uptick during CY24: PKR 3.9bln  (CY23: PKR 2.7bln). Non-mark-up income in CY24 increases to PKR 288mln(CY23: PKR 212mln) due to sustained fee and commission income.


Profitability

The Bank's non-markup expenses clocked in at PKR 2.2bln  (CY23: PKR 2.2bln). In 2024, the Bank booked a marginal provision of PKR 35mln (CY23: PKR 1.3bln), reflecting a significant improvement in asset quality and lower incidence of non-performing loans (NPLs). The bank's profitability took a major hit and recorded losses of PKR 3.1bln (CY23: loss of PKR 3.6bln).


Sustainability

The Bank is only allowed to lend what it recovers. The sponsoring shareholders are finding ways to recapitalize the Bank, for which a few options are being considered. The management is striving for recoveries, where they are hopeful that a significant amount of loan can be recovered. Also, the current portfolio is being switched towards a gold portfolio to further secure the Bank, while building a revenue stream.


Financial Risk
Credit Risk

During CY24, the Gross Loan Portfolio (GLP) inclined to PKR 8.4bln (CY23: PKR 6.9bln). The infection ratio further decreased to 37.4% (CY23: 41%) attributable to a net decline in the non-performing advances recorded negatively at PKR 165mln (CY23: PKR -249mln).


Market Risk

During CY24, the cash and bank balances with SBP and NBP are PKR 1.6bln; balances with other banks are PKR 2bln; whereas investment stood at PKR 1.7bln.


Funding

The Bank's funding is majorly fueled through deposits (CY24: PKR 25.6bln; CY23: PKR 22.4bln). The demand deposits clocked at PKR 14.9bln (CY23: PKR 13.1bln).


Cashflows & Coverages

A good size of liquidity is parked in government securities and bank placements, which support the risk profile. The net advances to deposit ratio also declined to stand at 32.3% (CY23: 29.8%).


Capital Adequacy

At the end-Dec'24 the Bank's equity base was recorded negatively to stand at PKR 9.4bln (CY23: PKR 6.6bln). The Bank remained non-compliant in meeting the minimum CAR requirement of 15%.
 
 

May-25

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Apna Microfinance Bank Limited

financial summary

(PKR mln)

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Dec-24
12M		 Dec-23
12M		 Dec-22
12M
A. BALANCE SHEET
1. Total Finances - net 8,460 6,939 7,527
2. Investments 1,774 1,154 2,366
3. Other Earning Assets 2,068 2,388 2,237
4. Non-Earning Assets 5,308 6,787 6,530
5. Non-Performing Finances-net (165) (249) 927
Total Assets 17,446 17,020 19,587
6. Deposits 25,674 22,450 22,606
7. Borrowings 0 0 0
8. Other Liabilities (Non-Interest Bearing) 1,204 1,211 1,028
Total Liabilities 26,878 23,660 23,634
Equity (9,452) (6,641) (4,047)
B. INCOME STATEMENT
1. Mark Up Earned 2,809 2,527 2,266
2. Mark Up Expensed (3,994) (2,731) (1,600)
3. Non Mark Up Income 288 212 171
Total Income (898) 8 836
4. Non-Mark Up Expenses (2,200) (2,263) (2,234)
5. Provisions/Write offs/Reversals 35 (1,305) (3,479)
Pre-Tax Profit (3,063) (3,560) (4,876)
6. Taxes (37) (34) 387
Profit After Tax (3,100) (3,594) (4,489)
C. RATIO ANALYSIS
1. Performance
Portfolio Yield 18.8% 17.8% 15.6%
Minimum Lending Rate 49.4% 53.2% 61.2%
Operational Self Sufficiency (OSS) 49.2% 42.6% 32.7%
Return on Equity N/A N/A -124.5%
Cost per Borrower Ratio N/A N/A N/A
2. Capital Adequacy
Net NPL/Equity 1.7% 3.7% 22.9%
Equity / Total Assets (D+E+F) -54.2% -39.0% -20.7%
Tier I Capital / Risk Weighted Assets N/A -140.0% -76.6%
Capital Adequacy Ratio N/A -140.0% -76.6%
Capital Formation Rate [(Profit After Tax - Cash Dividend ) / Equity] -46.7% -88.8% -1014.8%
3. Funding & Liquidity
Liquid Assets as a % of Deposits & Short term Borrowings 21.4% 24.7% 28.0%
Demand Deposit Coverage Ratio 34.5% 42.2% 52.4%
Liquid Assets/Top 20 Depositors N/A N/A N/A
Funding Diversification (Deposits/(Deposits+Borrowings+Grants)) 100.0% 100.0% 100.0%
Net Advances to Deposits Ratio 32.3% 29.8% 37.4%
4. Credit Risk
Top 20 Advances / Advances 0.0% 0.0% 0.0%
PAR 30 Ratio 37.4% 41.1% 38.5%
Write Off Ratio 0.0% 0.0% 0.0%
True Infection Ratio 37.4% 41.1% 38.5%
Risk Coverage Ratio (PAR 30) 103.3% 105.2% 80.0%

May-25

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Apna Microfinance Bank Limited

rating scale

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May-25

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Apna Microfinance Bank Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
    1. No director, officer, or employee of PACRA communicates the information acquired by him for use for rating purposes to any other person, except where required under law to do so. (Chapter III; 10-(5))
    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
    3. PACRA prohibits its employees and analysts from soliciting money, gifts, or favors from anyone with whom PACRA conducts business. (Chapter III; 11-A-(q))
    4. PACRA ensures before the commencement of the rating process that an analyst or employee has not had a recent employment or other significant business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest. (Chapter III; 11-A-(r))
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    6. PACRA promptly investigates in the event of misconduct or a breach of the policies, procedures, and controls, and takes appropriate steps to rectify any weaknesses to prevent any recurrence, along with suitable punitive action against the responsible employee(s). (Chapter III; 11-B-(m))
  4. Independence & Conflict of Interest
    1. 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.
    2. PACRA does not provide consultancy/advisory services or other services to any of its customers or their associated companies and associated undertakings that are being rated or have been rated by it during the preceding three years, unless it has an adequate mechanism in place ensuring that the provision of such services does not lead to a conflict of interest situation with its rating activities. (Chapter III; 12-2-(d))
    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
    4. PACRA ensures that the rating assigned to an entity or instrument is not 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. (Chapter III; 12-2-(i))
    5. PACRA ensures that the analysts or any of their family members shall not buy, sell, or engage in any transaction in any security which falls in the analyst’s area of primary analytical responsibility. This clause, however, does not apply to investments in securities through collective investment schemes. (Chapter III; 12-2-(l))
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  5. Monitoring and Review
    1. PACRA monitors all the outstanding ratings continuously, and any potential change therein due to any event associated with the issuer, the security arrangement, the industry, etc., is disseminated to the market immediately and in an effective manner after appropriate consultation with the entity/issuer. (Chapter III; 17-(a))
    2. PACRA reviews all the outstanding ratings periodically on an annual basis. Provided that public dissemination of annual review and in an instance of change in rating will be made. (Chapter III; 17-(b))
    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
    4. PACRA engages with the issuer and the debt securities trustee to remain updated on all information pertaining to the rating of the entity/instrument. (Chapter III; 17-(d))
  6. Probability of Default
    1. 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, the actual transition of rating may not follow the pattern observed in the past. (Chapter III; 14-3(f)(vii))
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    1. All information contained herein is considered proprietary by PACRA. Hence, none of the information in this document can 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 PACRA’s prior written consent.

May-25

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