Losses continue for Telenor Microfinance Bank

Telenor Microfinance Bank posted a loss of Rs10 billion in 2021 as per the latest annual report. The bank has now been in losses for a consecutive four years.  

Analysis

The latest financial statements of the bank revealed a loss of Rs10.4 billion for the financial year 2021, similar to the loss posted in the preceding year. Further, the bank managed to only generate an interest income of around Rs4 billion, a decrease of almost 50% compared to 2020. 

The decrease in income can be partially attributed to a reduction of 42% in the loan base as the bank seeks to cut back its lending to reduce operational risk. Therefore, it has diverted funds towards a more secure avenue; government securities.

The bank has reduced its operational footprint significantly as the number of branches came down to 66, a figure that was 120 in 2019. This might be due to channeling resources towards its branchless operations. However, the income from these is also declining year on year. 

Further, it is to be noted that 60% of branchless income is derived by the bank from money transfer services through Easypaisa which will be eliminated once RAAST is fully implemented in the country. 

The deposit base improved for the bank as its overall deposits went from Rs36.9 billion to Rs39 billion, an increase completely attributable to growth in Easypaisa mobile wallet deposits. 

The liquidity of the bank continues to deteriorate as it piles up losses while its sponsors, Alipay and Telenor, inject equity to keep it afloat. The combined additional equity invested in the bank for 2020 and 2021 is around Rs19 billion with the latter year seeing an inflow of Rs11.6 billion.  

Easypaisa

The only positive for the bank was its financial service platform. The number of mobile wallet accounts reached 9.6 million growing 19% year on year. Further, the agent network was extended to 188,942 and mobile wallet deposits reached Rs24 billion growing at 8% and 28% respectively. 

What went wrong?

Telenor Bank had an impressive record for almost a decade primarily due to the success of Easypaisa. However, competition picked up when Mobilink Bank started to invest heavily into Jazzcash aiming for the market leader position in the mobile wallet space which it eventually got by the end of 2018 as per Karandaaz Data Portal. 

Things took a turn for the worse in 2019 when a massive employee fraud in Telenor bank was unearthed resulting in heavy loan defaults which the bank is yet to recover from. 

Additionally, the advent of the pandemic in 2020 also took a toll on the bank’s loan portfolio as the industry wide non-performing loans grew due to economic slowdown. 

The State bank’s decision to abolish IBFT charges in 2020 also added to Telenor bank’s woes as its main source of branchless income was affected, as admitted by the CEO of Telenor, Irfan Wahab, in an interview with Profit. 

Telenor selling its stake

Last year, in November, Telenor decided to sell its stake in the bank citing a strategy shift from its global parent as the reason. As of now, two banks, UBL and MCB have shown an interest to acquire the bank. 

However, the problem is that the bank itself is a loss making entity with no signs of recovery while profitability of Easypaisa has been dented due to the elimination of IBFT charges and introduction of RAAST.  

The only value the acquiring banks can generate from Telenor Microfinance is through its 9.6 million mobile wallet accounts which form approximately 21% of the total active mobile wallet accounts in the country as per PTA. These wallets can provide a distribution channel for other financial products like insurance, which has proven to be a lucrative avenue for commercial banks.