VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of HBL Microfinance Bank Limited (HBL MfB) at ‘A+/A1’ (Single A Plus/A One), signaling continued confidence in the institution’s creditworthiness and long-term viability. These ratings represent strong medium to long-term credit quality with adequate protection factors, while also indicating excellent short-term liquidity and a strong likelihood of timely repayment of obligations.
The outlook on these ratings remains ‘Stable’, consistent with VIS’s previous rating announcement made on April 30, 2024. According to VIS, the reaffirmation reflects HBL MfB’s solid sponsor profile, strategic recalibration, and its ability to maintain stability in the face of ongoing economic headwinds.
Incorporated in November 2001 as a public limited company under the Companies Ordinance, 1984 (now replaced by the Companies Act 2017), HBL Microfinance Bank commenced operations in February 2002. The bank emerged from the structured transformation of the credit and savings segment of the Aga Khan Rural Support Programme (AKRSP). As a licensed nationwide microfinance bank under the State Bank of Pakistan (SBP), HBL MfB is committed to alleviating poverty and improving the socio-economic well-being of underprivileged communities by offering accessible financial solutions.
A key strength supporting the current rating is the continued majority ownership and backing of Habib Bank Limited (HBL), one of Pakistan’s largest financial institutions. This strong sponsor support has been underlined by capital injections in both 2024 and 2025, reinforcing the bank’s financial foundation.
HBL MfB’s ongoing strategic shift towards a secured loan portfolio, including greater exposure to housing finance and a significant uptick in investments in government securities, has been instrumental in risk mitigation. The bank has also scaled back exposure to group-based and bullet lending products, aiming to de-risk its lending portfolio amid an increasingly volatile credit environment.
However, despite these precautionary measures, the bank experienced a notable decline in asset quality during 2024. This was mainly due to an increase in non-performing loans (NPLs) and higher provisioning costs, especially in the agriculture lending segment—one significantly impacted by industry-wide challenges and the 2024 wheat crisis. The bank has since adopted a more cautious approach to agricultural lending to mitigate future risks.
Liquidity metrics have shown resilience, with an improvement in liquid asset reserves. Although overall deposits contracted slightly—driven by a planned reduction in institutional savings accounts—the bank is making visible progress in diversifying its funding base. Enhanced focus on mobilizing current deposits and expanding branchless banking solutions is beginning to show positive results.
On the profitability front, despite an increase in investment income, HBL MfB’s bottom line suffered due to rising funding costs amidst a high policy rate environment and increased provisioning expenses. These were largely related to the early implementation of IFRS-9 and sectoral loan losses.
Nevertheless, the bank’s capitalization remains strong, supported by recent equity infusions and Tier-II capital issuance. The most recent capital injection in March 2025 further bolsters the bank’s growth trajectory and financial resilience.
Looking ahead, HBL MfB is focused on optimizing its deposit mix, strengthening recovery mechanisms, and enhancing income diversification. The bank is also progressing toward a transition to an Islamic banking model, aligning with regulatory mandates.
According to VIS, the reaffirmed ratings are contingent on the bank’s ability to improve its asset quality and financial performance through continued strategic realignment and operational discipline.