Non-Bank Finance Company Rating

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Credit Rating Company Limited vis.com.pk 1 VIS Credit Rating Company Limited Non-Bank Financial Companies NOVEMBER 2025 NON-BANK FINANCIAL COMPANIES VIS Credit Rating Company Limited

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Credit Rating Company Limited vis.com.pk 2 VIS Credit Rating Company Limited Non-Bank Financial Companies NOVEMBER 2025
Table of Contents
SCOPE OF CRITERIA..........................................................................................................................................................................3
SUMMARY OF CRITERIA CHANGES ..........................................................................................................................................3
OPERATING ENVIRONMENT........................................................................................................................................................4
ASSESSMENT OF STANDALONE OPERATING PROFILE...................................................................................................4
A. QUALITATIVE FACTORS........................................................................................................................................................4
B. QUANTITATIVE FACTORS ....................................................................................................................................................5
EXTERNAL SUPPORT ........................................................................................................................................................................7
RATING SCALE & DEFINITIONS ...................................................................................................................................................7

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Credit Rating Company Limited vis.com.pk 3 VIS Credit Rating Company Limited Non-Bank Financial Companies NOVEMBER 2025 SCOPE OF CRITERIA The scope of the methodology applies to Non-Bank Finance Companies (NBFC), including leasing companies, Investment Banks, Modarabas, Investment Finance, Housing Finance Services and Discounting Services, whether operating on conventional or digital platform. Non-bank microfinance companies (NBMFCs), asset management companies (AMCs), and investment advisors (IAs) are covered through their respective methodologies. SUMMARY OF CRITERIA CHANGES The Non-Bank Financial Companies Rating Methodology dated February 2024 has been reviewed, and the fundamental criteria outlined therein remain unchanged. The methodology may be read in conjunction with the updated regulatory updates/changes incorporated in the NBFC Regime. AN OVERVIEW OF RATINGS FRAMEWORK Pakistan’s financial system remains bank-dominated, with NBFCs contributing only a small share due to structural challenges such as limited resource mobilization, lack of deposit-taking flexibility, absence of credit lines from banks, and no lender-of-last-resort support from the SECP. NBFCs are classified by business type—lending (deposit-taking or non￾deposit-taking), fund management, and advisory—and by mode of operation (conventional or digital). Regulations set differentiated minimum equity levels, cap aggregate liabilities for non-deposit-taking NBFCs, and link deposit-raising ability to equity and credit ratings. The regulatory framework has strengthened over time, with improved prudential standards and governance requirements. External regulatory effectiveness and oversight positively influence credit protection and therefore impact ratings. VIS’s rating approach ensures cross-sector comparability, positioning each NBFC within the broader rated universe while incorporating both sector-specific and firm-specific risks. Economic conditions and financial-sector developments are fully reflected in the assessment. The analytical framework consists of three layers: (1) system-wide external factors influencing industry risk, (2) the NBFC’s standalone operating and financial profile, and (3) the likelihood of external support available to the institution

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Credit Rating Company Limited vis.com.pk 4 VIS Credit Rating Company Limited Non-Bank Financial Companies NOVEMBER 2025 Analytical Framework for Assessing NBFCs OPERATING ENVIRONMENT An assessment of operating environment of NBFCs incorporates economic and industry risks to which NBFCs are ex￾posed to or may face over the rating horizon. In the assessment of economic risk, it is important to understand the current and forecasted state of the economy, flexibility of the economic policy to projected socio-political structure, current and potential economic imbalances and the major credit risk sectors. In economic risk analysis, the NBFC’s capacity to adjust to national level economic changes is also assessed. For the industry risk assessment, the depth of coverage of the regulatory environment for NBFCs and its monitoring effectiveness by the regulator is taken into account. Ratings are also influenced by the ability of the regulators to as￾certain the soundness of NBFC in the system and their capacity and willingness to intervene to prevent institutional failures. The transparency in the system as inculcated by the regulatory framework is also given due weight as well as the efficiency of the overall legal system in case of foreclosure events for customers’ security repossession. ASSESSMENT OF STANDALONE OPERATING PROFILE Assessment of standalone operating profile looks into both qualitative and quantitative factors which are discussed in detail below:
A. QUALITATIVE FACTORS
A. (i) Corporate Governance
To the extent that poor governance jeopardizes the interest of creditors, its impact is factored into credit ratings. The objective of our assessment of corporate governance is to ensure that the organization is structured to allow for an effective internal control environment to develop, and minimize the possibility of the misuse of power by dispersing it Operating Environment Standalone Operating Profile Qualitative Factors

1. Corporate Governance
2. Management
3. Resilience & Market
   Power
   Quantitative Factors
4. Capitalization and
   Leverage
5. Funding & Liquidity
6. Asset Mix
7. Profitability
   External Support Issuer Credit Rating

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Credit Rating Company Limited vis.com.pk 5 VIS Credit Rating Company Limited Non-Bank Financial Companies NOVEMBER 2025 optimally within the organization. Among other variables are the various features of the board of directors. In the context of the board’s structure, VIS focuses on the role played by the board, the quality of its vision, the blend of its professionals and their relevance to the business, and the efficacy ofits committees. Other key areas are the strength of the supervisory functions including internal and external audit. The degree of sophistication in risk management systems being employed is also a paramount consideration in our evaluation. Eventually good governance and sound risk management protects the value of a company’s resources and optimizes their utilization, allowing the entity to honor its commitments to all its stakeholders including the creditors. A. (ii) Management Experience profile of senior management team and ability of the organization to continue operations without significant disruption in case of loss of key personnel is assessed while reviewing the senior management profile. Presence and evidence of strategic planning process, consistency of strategy along with availability of resources and strong policy & procedural framework are also positive from a ratings perspective. A. (iii) Resilience and Market Power The size of an entity, though not the only indicator of an issuer’s strength, correlates strongly with market position. Given a comparable performance track record, larger entities will tend to be rated higher. While evaluating an organization on attributes like asset quality or access to financial resources, the benefit of diversification, which is generally greater in larger entities, is to be taken into account. There are tangible reasons behind the effect of size being visible in ratings. Firstly, it generally affords an organization more market power in all facets, i.e. ability to attract the best quality people, attracting financial resources, access to better infrastructure and of course pricing power. If however, these strengths are somehow absent in a large organization or are presentin smaller ones, ratingswill bemindful of suchinstances, although such cases are exceptions rather than a norm. This is not to imply that agile and small organizations lose their competitive edge over time. While they may continue to be successful as business models, market power will inevitably be accounted for as one of the variables in the risk equation. Particularly, in growing economies, as the business environment becomes increasingly competitive and mergers and acquisition related activity also increases as its natural outcome, economies of scale generally assume greater significance. A. (iv) ESG Status & Digital Platform The ESG policies of the NBFC are reviewed, where applicable. In NBFC operating on a digital platform, the strength of its digital platform is also reviewed. B. QUANTITATIVE FACTORS B.
(i) Capitalization and Leverage: Building blocks for the future Capital is viewed by VIS as a cushion available to an entity against unforeseen losses. It is the foremost indicator of the degree of protection that an organization provides to its creditors against future losses and its sufficiency is to be assessed in relation to risks being carried by the company. Credit risk, market risk and operational risks being the primary sources of risk, are assessed to determine whether the entity is appropriately capitalized. NBFCs may also diversify their operations into money and capital market operations and the presence of market risk in addition to potential for loan and lease losses is quantified in relation to equity. Hidden reserves if any are also to be accounted for.

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Credit Rating Company Limited vis.com.pk 6 VIS Credit Rating Company Limited Non-Bank Financial Companies NOVEMBER 2025 Leverage, or the amount of debtin relation to the capital base, is a crucial factor in assigning ratings. VIS believes thatin a growing economy and in dynamic organizations, capitalization levels generally move towards optimization and higher than average capitalization levels are ultimately leveraged to obtain higher value for shareholders. Nevertheless, organizations may be less or more risk averse and higher levels of capital, both in absolute and relative terms are viewed favorably in ratings. Therefore, understanding the propensity of both owners and management to take risk is part of our judgment process.Cushion over Capital Adequacy Ratio requirement (mentioned in NBFC regulations) is also an important rating factor. We also focus on an NBFC’s ability to grow its capital base through retention of earnings, as this is the most reliable source for stable growth. This brings into focus the dividend payout policy as even strong profitability can be diluted through heavy cash payouts. A substantial capital base enables the management to make circumspect decisions regarding growth and funding alternatives. B. (ii) Funding & Liquidity In case of NBFCs, the degree of leverage has to be considered in the context of the nature of liabilities, which are time￾based primarily in contrastto demand liabilities as in case of commercial banks. Therefore, liquidity indicators required to qualify for higher ratings are often lower for NBFCs as compared to commercial banks. More specifically, we evaluate the degree to which it has been able to match its assets and liabilities, and whether short-term and long-term debt corresponds with the maturity and interest rate profile of the financing and investment portfolios. Liquidity available to meet its short-term obligations is judged through the assessment of all near-term claims against short-term sources of cash. VIS considers the quality, diversity and stability ofthe sources of cash. The generation and prudent management of these cash flows is a key factor in our assessment. Access to funding is another important rating consideration. NBFCs largely rely on secondary sources of funding such as institutional borrowings, although a number of them have also accessed public funds through the issuance of Certificates of Investments (COIs) or other forms of debt instruments. Consequently, the ability to access the short, medium, and long-term markets at competitive rates is critical to their ongoing viability. The diversification and stability of funding sources in turn determines liquidity requirements for an institution. Ideally, an NBFC’s funding strategy should include a variety of funding sources. VIS evaluates an entity’s flexibility to deal with market events and capacity to fund new business. We place high value on its access to debt markets and the portion of assets that can be liquidated
without any significant impairment to value. B. (iii) Asset Quality Appraising the asset quality is a key factor in the rating process. Fundamental to this process is analyzing the asset mix. NBFCs are increasingly diversifying their scope of operations into a variety of avenues as afforded under the NBFC rules, in addition to the traditional financing portfolios. While this translates into diversification of revenue stream, it also exposes NBFCs to a variety of risks including market risk in addition to interest rate risk and credit risk. Increased treasury and capital market operations warrant an in-depth analysis of the mechanisms used to adjust to the changing environmental dynamics and maintenance of the liquidity position. As far as the financing portfolios are concerned, cash recoveries against these are critical to the timely servicing of debt obligations. Since improvement or deterioration in the portfolio can lead to significant changes in the financial strength of

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Credit Rating Company Limited vis.com.pk 7 VIS Credit Rating Company Limited Non-Bank Financial Companies NOVEMBER 2025 the company, VIS seeks to conduct a comprehensive analysis of asset quality. In this regard, level of infection and the effectiveness of the management policies regarding recoveries and risk assessment procedures are assessed. The size of the portfolio on both an absolute and relative basis is another consideration. There is usually less risk associated with a portfolio that is diversified in terms of geography, customer base, and type of product. Management’s philosophy regarding concentration is reviewed, along with its growth plans. Weaker companies are more sensitive to changes in the environment and the nature and intensity of changes in market conditions has a substantial impact on their financial strength and ratings. B. (iv) Profitability Improvement in profitability in a single year generally does not add significantly to risk protection available to creditors. However, sustained profitability over a number of years leads to a strong institution. The quality of earnings is given as much importance as its level, with emphasis on the continuity and predictability of revenues. Our analysis segregates recurring earnings,which are expected to provide a better picture of a company’s future earning potential,from non- core earnings. Earnings reflectthe efficacyofthe management’s strategy andcapacity of aninstitution to generate capital internally. The level of basic earnings (excluding provisions, taxes and any other non-recurring items) determines the institution’s capacity to create reserves for potential losses. EXTERNAL SUPPORT An NBFC’s ability to honor its financial commitments is also affected by the degree of external support. Ownership pattern and track record ofthe promoters/group companies is reviewed. Likelihood of supportfrom strong promoters in times of need generally tends to be high. Creditworthiness of financially weak NBFCs may be enhanced, if backed by a strong third party. By the same token, the financial viability of associated concerns is also taken into account and translated into any strength / stress that may impact the risk profile of the entity being rated. The sponsors support extended by way of equity injection is ranked higher than interest free redeemable capital/loan. RATING SCALE & DEFINITIONS Rating scale and Definitions may be accessed at (https://docs.vis.com.pk/docs/VISRatingScales.pdf)

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Credit Rating Company Limited vis.com.pk 8 VIS Credit Rating Company Limited Non-Bank Financial Companies NOVEMBER 2025 Islamic International Rating Agency – Bahrain – iira.com Credit Rating Information & Services Ltd. – Bangladesh – crislbd.com Japan Credit Rating Agency, Ltd. - Japan China Chengxin International Credit Rating Company Limited - China 128/C, 25th Lane off Khayaban-e-Ittehad, Phase VII, DHA, Karachi Tel: (92-21) 35311861-64 431, Block-Q, Commercial Area, Phase-II, D.H.A. Lahore - Cantt. Tel: (92-42) 35723411-13 www.vis.com.pk info@vis.com.pk VIS Credit Rating Company Ltd. Information herein was obtained from sources believed to be accurate and reliable; however, VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Rating is an opinion on credit quality only and is not a recommendation to buy or sell any securities. Copyright VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS. DISCLAIMER