NESDO Sambridha Laghubitta Bittiya Sanstha Limited: Rating downgraded

and moved to ‘Issuer not cooperating’ category with notice for rating
withdrawal
December 6, 2022

Summary of rating action

Facility/Instrument Rated Amount (NPR Million) Rating Action
Issuer Rating NA [ICRANP-IR] BB “ISSUER NOT COOPERATING*”;
downgraded from [ICRANP-IR] BB+ and moved to issuer
not cooperating category
*Issuer did not cooperate; based on best available information

Rating action
ICRA Nepal has downgraded and revised the issuer rating assigned to NESDO Sambridha Laghubitta Bittiya Sanstha
Limited (NSLBSL) to [ICRANP-IR] BB ‘Issuer Not Cooperating’ (pronounced ICRA NP IR double B Issuer Not Cooperating)
from [ICRANP-IR] BB+. The rating actions have been taken in accordance with the Credit Rating Regulations 2011
following non-cooperation from NSLBSL for rating information despite multiple follow-ups. The rating has been put on
notice for withdrawal.

Rationale
The rating was downgraded because of lack of adequate information about NSLBSL’s performance and hence the
uncertainty around its credit risk, especially in the backdrop of increased NPLs (4.41% as of mid-October 2022 from
2.07% as of mid-April 2022; last rating exercise). Although the company has reported healthy profitability despite the
increased cost of borrowings aided by its higher composition of member’s deposits in the funding profile (~86% of
total funding from member deposits as of mid-October 2022), the increased NPLs and delinquencies could result in
increased credit provision expenses going forward, which could have material impact on the financial metrices.

ICRA Nepal assesses whether the information available about the entity is commensurate with its rating and reviews
the same as per Credit Rating Regulations 2011 as well as ICRA Nepal’s ‘Withdrawal/Suspension Policy’ available at
www.icranepal.com.

For such ratings, the lenders, investors, and other market participants are thus advised to exercise appropriate caution
while using the rating as it may not adequately reflect the credit risk profile of the entity. The entity’s credit risk profile
may have changed to a level greater than that represented by the rating symbol.

As part of its process and in accordance with its rating agreement, ICRA Nepal has been trying to seek information
from the entity to monitor its performance, but despite repeated requests by ICRA Nepal, the entity’s management
has remained non-cooperative. In the absence of requisite information and in line with the aforesaid policy of ICRA
Nepal, a rating view has been taken on the entity based on the best available information.

Link to previous rating rationale

Rationale - NESDO Sambridha Laghubitta Bittiya Sanstha Limited – May 2021
Analytical approach: For arriving at the ratings, ICRA Nepal has applied its rating methodologies as indicated below.
Links to applicable criteria:
Issuer Rating Methodology
Credit Rating Methodologies for Non-banking Finance Companies

Company Profile
Incorporated in April 2018 (in CRO), NESDO Sambridha Laghubitta Bittiya Sanstha Limited (NSLBSL), started operations
from March 2019 as a licenced national level class-D MFI. After its licensing, NSLBSL took over the microfinance
business being conducted by National Education and Social Development Organization, NESDO Nepal (NESDO), an
NGO established in June 1995 and operating as financial intermediary since November 2000. The shareholding
structure of NSLBSL consists of NESDO Nepal, NGO as promoter (~70%) along with Prabhu Bank Limited (~7%) and rest
being held by held by 81 individuals as on mid-July 2021. The registered and corporate office of NSLBSL is located at
Kushma-6, New Road, Parbat.

NSLBSL reported a net profit of ~NPR 222 million in FY2022 on an asset base of ~NPR 5,059 million as of mid-July 2022
against net profit of ~NPR 130 million over an asset base of ~NPR 3,887 million as of mid-July 2021. Further, it
reported profit after tax of ~NPR 56 million in Q1 FY2023 over as asset base of ~NPR 5,079 million as of mid-October
2022. NSLBSL’s gross NPLs stood at 4.41% and CRAR at 18.38% as of mid-October 2022 (4.47% and 19.25%,
respectively as of mid-July 2022).

Key financial indicators

Mid-July 2020 Mid-July 2021* Mid-July 2022* Mid-October 2022*
Year Ended
(Audited) (Audited) (Provisional) (Provisional)
Number of members 79,092 78,054 78,417 NA
Credit portfolio (NPR million) 3,472 3,730 4,584 4,706
No. of borrowers 43,961 39,915 42,846 NA
Avg. ticket size (NPR) 78,981 93,437 106,981 NA
No of branches 56 56 56 NA
Deposits (NPR million) 2,086 2,243 2,522 2,553
Deposit to loan ratio 60% 60% 55% 54%
Gross NPLs 2.17% 6.97% 4.47% 4.41%
Operating ratios
Yield on Average Loans 19.07% 17.92% 15.15% 13.85%
Cost of Avg. Int. Bearing Funds 10.09% 7.30% 7.84% 8.24%
Net Interest Margin/ATA 11.24% 10.71% 8.55% 7.88%
Non- interest income/ ATA 2.24% 1.92% 2.23% 1.65%
Operating expenses / ATA 4.08% 3.80% 3.69% 3.16%
Credit Prov. & Write-offs /ATA 5.55% 2.63% 0.00% 0.00%
PAT/ATA 2.71% 3.36% 4.96% 4.46%
PAT/Average Net worth 29.50% 25.28% 30.60% 25.67%
Capitalization ratios
Capital adequacy ratio 10.04% 12.58% 19.25% 18.38%
Gearing [(deposits+ borrowing)/
5.33 4.57 3.39 3.34
net- worth] times
Borrowing/ net worth (times) 0.69 0.68 0.50 0.46
*Data obtained from company’s website and nrb.org.np

For further details please contact:

Analyst Contacts
Mr. Sailesh Subedi (Tel No. +977-1-4419910/20)
sailesh@icranepal.com

Mr. Bipin Timilsina (Tel No. +977-1-4419910/20)

bipin@icranepal.com

Relationship Contacts
Ms. Barsha Shrestha (Tel No. +977-1-4419910/20)
barsha@icranepal.com

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