Press Release

VIS Maintains Entity Ratings of LOLC Microfinance Bank Limited

Karachi, May 07, 2024: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of LOLC Microfinance Bank Limited (LOLC MfB), formerly Pak Oman Microfinance Bank Limited, at ‘A-/A-2’ (Single A Minus/A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings has been revised from ‘Negative’ to ‘Stable’. The previous rating action was announced on April 28, 2023.

LOLC 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Bank Limited was established on March 9, 2006, as a publicly listed company under the Companies Ordinance, 1984 (repealed with the introduction of the Companies Act, 2017 on May 30, 2017).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 ratings for LOLC Microfinance Bank (‘LOLC MfB’ or ‘the Bank’) takes into consideration its 100% ownership by LOLC Asia Pvt Limited, which is in turn owned by LOLC Group Sri Lanka – a well-diversified conglomerate, with investments across various sectors including financial services, insurance, manufacturing, trading, plantation, renewable energy, and leisure. LOLC MfB has received financial and operational support from the group since its acquisition of the Bank in Pakistan. Recent changes in governance structure and in management have been noted. Going forward, management aims to increase its deposit base through TDRs and launch new CASA products in order to fund portfolio growth plans in the medium term.

With sizable product concentration in microenterprise loans, which were impacted by economic downturn, the fall in disbursements and higher recoveries, combined with increased write-offs during the outgoing year, resulted in a smaller gross loan portfolio. Given that almost the entire portfolio comprises unsecured lending, credit risk faced by the Bank is elevated, causing the recent strategic shift to reduce the proportion of unsecured loans to 70% of the total portfolio by end of the ongoing year. The improvement in micro-credit risk segregations and asset quality indicators noted over the past years support ratings assigned.

The reduction in spreads has been noted due to low yield of microcredit portfolio in line with suspended income on non-performing loans, higher cost of funding originating from policy rate hikes during the outgoing year and lag in passing the increase in policy rates to borrowers. Significantly high proportion of borrowings in the funding mix, which are re-priced at periodic intervals, have negatively impacted the spreads in a rising benchmark rate scenario.

Dependence on borrowings for funding and concentration of deposits has implications for liquidity, marking generally weak market access. The upcoming repayments on borrowings will also hamper availability of funds for growth. However, given the sizable liquid assets maintained in relation to deposits as well as the predictable nature of outflows on borrowings vis-a-vis expected inflows from the micro-credit portfolio, has eased liquidity concerns to an extent, relative to prior year. The capitalization profile remains sound as Capital Adequacy Ratio remains well above the regulatory requirement owing to equity injections more than compensating for losses in 2022 and 2023, and a fall in gross loan portfolio. Going forward, enhancement of profitability indicators on the back of better access to liquidity for growth, will be key drivers for any improvement in assigned ratings.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at

Applicable Rating Criteria:

Micro-Finance Banks

VIS Issue/Issuer Rating Scale

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