Karachi, Credit Rating Company Limited has updated the entity ratings for LOLC Microfinance Bank Limited, formerly known as Pak Oman Microfinance Bank Limited, maintaining its ratings at 'A-/A-2' with a revised outlook from 'Negative' to 'Stable'. This adjustment reflects the bank’s solid liquidity factors, adequate protection, and consistent access to capital markets despite small risk factors.
According to VIS Credit Rating Company Limited, the medium to long-term rating of 'A-' signifies good credit quality with adequate protection factors, though subject to changes due to economic fluctuations. The short-term rating of 'A-2' indicates a good certainty of timely payment. The improved outlook represents a stabilization of earlier concerns primarily related to credit risks and economic conditions impacting the bank.
LOLC Microfinance Bank, established in 2006, is wholly owned by LOLC Asia Pvt Limited, part of the diversified LOLC Group Sri Lanka. The bank focuses on microfinance services to underserved sectors, significantly supported by its parent company in financial and operational capacities. Recent governance and management shifts aim to enhance its deposit base and launch new Current and Savings Account (CASA) products to fund growth.
Despite economic downturns impacting its microenterprise loans, LOLC Microfinance Bank has seen a decrease in disbursements and an increase in write-offs. To mitigate unsecured lending risks, the bank plans to reduce unsecured loans to 70% of its portfolio by year-end. Improvements in micro-credit risk segregation and asset quality indicators over recent years have supported the bank’s stable rating.
The bank faces challenges with the low yield of its microcredit portfolio and high costs due to policy rate increases. Additionally, reliance on borrowing for funding has pressured liquidity, although a solid capital adequacy ratio above regulatory requirements, supported by recent equity injections, underpins financial stability.
Moving forward, the bank’s focus will be on enhancing profitability and liquidity management to support ongoing growth and potentially improve its credit ratings.