Press Release
VIS Reaffirms Entity Ratings of LOLC Microfinance Bank Limited
Karachi, May 12, 2025: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of LOLC Microfinance Bank Limited (‘LOLC’ or the ‘Bank’) at 'A-/A2' (Single A Minus/A Two). Medium to long term rating of 'A-' indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short term rating of 'A2' indicates good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings remains ‘Stable.’ Previous rating action was announced on May 07, 2024.
LOLC Microfinance Bank Limited, previously known as Pak Oman Microfinance Bank Limited, was established on March 9, 2006, as a publicly listed company under the Companies Ordinance, 1984 (repealed with the introduction of the Companies Act, 2017 on May 30, 2017). It obtained its license from the State Bank of Pakistan (SBP) on April 12, 2006. The Bank commenced its operations on May 6, 2006, with its principal focus on providing microfinance services to the marginalized and underserved sectors of society, in accordance with the Microfinance Institutions Ordinance, 2001.
The assigned ratings of LOLC Microfinance Bank Limited reflect the institution’s strategic transition toward a more resilient and risk-mitigated business model. The Bank is backed by LOLC Holdings, a global financial conglomerate with a footprint in multiple emerging markets. This ownership provides both operational expertise and financial backing. Over the review period, the Bank shifted its lending strategy significantly, scaling down unsecured and agriculture-related exposures while ramping up secured, short-tenor products, particularly gold-backed loans. This pivot has reduced overall portfolio risk and improved asset quality indicators as observed in improving infection ratios, though the rising share of bullet repayment loans necessitates vigilant monitoring to preempt asset quality slippages.
On the operational front, the Bank continued to streamline its loan officer base while enhancing per officer productivity. The reduction in headcount was a deliberate move, supported by technological enhancements in core banking and customer service delivery. Despite a contraction in the active borrower base, the average loan size increased, suggesting a tilt toward larger, higher-value lending relationships.
The Bank demonstrated significant deposit mobilization during the period, allowing it to fully retire its prior borrowing obligations. This shift in funding mix—toward deposit-led financing—contributed to an improved liquidity profile, though the reliance on fixed-term deposits continues to exert pressure on funding costs and underscores the challenges in cultivating broad based liquidity access. Management is aiming towards building a CASA base and shortening the average deposit tenor, to manage the cost of funds more effectively.
Profitability remained under strain due to margin compression and elevated operating expenses, resulting in continued losses. However, internal projections suggest a gradual improvement, with breakeven expected over the medium term, driven by loan book expansion, cost rationalization, and deposit pricing optimization.
The capitalization profile, while compressed due to recent losses and IFRS-9 implementation, remains compliant with regulatory thresholds. Plans for moderate growth alongside a low risk weighted, secured lending strategy are expected to support capital adequacy going forward. The Bank’s roadmap for full-scale Islamic banking conversion is a key strategic development that, if executed well, could support long-term franchise value. Going forward, the ratings are dependent on the Bank’s ability to sustainably improve profitability metrics, maintain asset quality, and successfully execute its strategic transition toward secured and Shariah-compliant operations.
For further information on this rating announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.
Applicable Rating Criteria:
Micro Finance Banks
https://docs.vis.com.pk/docs/MicroFinance-Oct-2023.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf