TPL Corp, Abhi jointly explore majority stake in FINCA Microfinance Bank

TPL Corp shared that it has entered into a non-binding term sheet along with Abhi

TPL Corp Limited and Abhi (Private) Limited, a financial platform, have partnered to explore the potential acquisition of a majority stake in FINCA Microfinance Bank Limited.

“We are pleased to announce that the Board of Directors of TPL Corp Limited (“TPL”) has accorded its approval to TPL to jointly explore the potential acquisition of a majority shareholding in FINCA Microfinance Bank Limited along with Abhi (Private) Limited,” the company revealed in a stock filing on Pakistan Stock Exchange (PSX) today.

The proposed transaction should remain subject to the approval of the State Bank of Pakistan (SBP) to commence the due diligence, the outcome of the due diligence process, obtaining requisite internal and regulatory approvals, and entering into definitive documentation.

TPL Corp shared that it has entered into a non-binding term sheet along with Abhi.

Earlier in January 2023, Apna Microfinance Bank Limited (APNA), a microfinance services provider, entered into a Memorandum of Understanding (MoU) with FINCA .

However, in June, both microfinance banks disclosed that the proposed merger has been shelved after completing a comprehensive due diligence process.

FINCA said back then that it was exploring other options, and among these options are a number of well-known international financial institutions.

FINCA Microfinance Bank’s financial troubles

According to a report by Profit, the auditors raised a red flag in the annual reports of 2021 of FINCA by highlighting a “Material Uncertainty relating to Going Concern.” This alarming phrase indicates that the bank is facing a serious problem: it doesn’t have sufficient assets to cover its liabilities.

This concern arose after FINCA MFB incurred a whopping net loss of Rs.1.5 Arab in 2021. The losses arose due to the adverse effects of COVID-19. COVID-19 wreaked havoc, hitting the borrowers hard and making it difficult for them to repay their loans which resulted in a substantial increase in write-offs, and provision against non-performing advances (loans). Their interest income took a hit. The Capital Adequacy Ratio (CAR) dropped.

While the bank managed to meet the CAR regulatory requirements by the end of 2021, there was a looming threat that the threshold might be breached in the next twelve months based on projected results.

The latest period for which FINCA MFB’s financial statements are available is for the first quarter of 2022. The bank hasn’t released the subsequent period’s financial statements, which indicates the bank’s capital inadequacy issue.

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