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The assigned ratings of
Financing portfolio witnessed sizeable growth in 9M'FY20 vis-a-vis the corresponding period in the previous year primarily on account of acquisition of new clients. Concentration in portfolio remains due to selective disbursement strategy. Asset quality indicators are sound given the management's focus on maintaining a clean portfolio. However, the impact of COVID-19 on the economy would make operating dynamics of the modarabas challenging going forward. Regulatory relief measure granted by SECP to allow for delay of principal payment for one year to clients is expected to delay the impact of prevailing headwinds on portfolio asset quality indicators.
However, exposure of SM to credit risk may be elevated due to significant impact of COVID-19 on already weak macroeconomic indicators. Given the economic slowdown and potential adverse impact on borrowers' repayment capacity due to COVID-19, management will be targeting cautious growth in financing portfolio going forward. Maintaining asset quality indicators in line with the ratings benchmark is considered important from ratings perspective.
Capitalization indicators of SM are considered sound as the company has not mobilized any interest-bearing debt. Equity base was further enhanced during FY20 though acquisition of an additional interest free loan of
With growth in financing portfolio and increasing interest rate scenario, improvement was observed in profitability profile of the company. Efficiency ratio has also remained at manageable levels for the company over the years. However, it is expected that the impact of curtailment of economic activity for a certain period of time, higher business risk in the borrower portfolio and lower lending rate scenario may impact profitability indicators going forward. Conservative lending strategy to maintain asset quality and cost efficiencies would be important rating drivers going forward.
For more information, contact:Director Compliance and Rating Analytics,VIS Credit Rating Company LimitedVIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,Phase VII, DHA,
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