GCR Upgrades LAPO Microfinance Bank Rating Outlook
GCR Ratings has affirmed LAPO Microfinance Bank Limited’s national scale long and short-term issuer ratings of BBB-(NG) and A3(NG), respectively, with the outlook revised to stable from negative.
In its rating note, GCR said the ratings of LAPO Microfinance Bank Limited’s balance its strong capitalisation against a modest competitive position, moderate liquidity, and weak asset quality metrics.
LAPO has grown steadily over the years, registering total assets of NGN125 billion as of 31 December 2024, from N104.6 billion in 2023, representing an estimated market share of 3.0% of the microfinance subsector.
However, the rating analysts said LAPO’s competitive position assessment is largely constrained by its smaller size relative to the broader banking sector.
GCR said the microfinance bank’s assessment is further limited by its operational inefficiencies, as reflected by the relatively high cost-to-income ratio of 75.8% as of 31 December 2024, down from 80.9% a year earlier.
The rating note said the bank’s planned debt issuance and increased deposit mobilisation could further support growth, while its sustained digitalisation strategy is expected to enhance digital offerings and improve operational efficiency over the next 12 to 24 months.
However, GCR highlighted that LAPO’s capitalisation remains a major ratings strength. As of 31 December 2024, the bank’s GCR core capital ratio registered at a strong 30.9% versus 33.8% in 2023, underpinned by the moderate loan book growth and good earnings accretion.
The rating note revealed that the bank capital adequacy ratio (CAR) also remained well above the regulatory minimum of 10% for its microfinance banking license category.
“Over the next 12-18 months, we expect the GCR core capital ratio to remain within 27%-30%, supported by sustained strong earnings generation and retention, and balanced against the planned loan book growth from the proposed NGN10 billion bond issuances”, GCR said.
LAPO’s risk position is noted to be negative to the micro lender’s ratings, reflecting its weak asset quality metrics. Although the bank’s non-performing loans (NPL) and credit loss ratios improved to 9.4% and 0.6% respectively as of 31 December 2024, rating analysts said this was largely supported by loans write-offs.
Looking ahead, GCR said the bank’s improved collections channels, recovery efforts and other remedial actions could support further improvement in the asset quality metrics.
GCR emphasised that LAPO’s risk profile remains vulnerable to the challenges operating environment, particularly given its focused segment.
“We assessed funding and liquidity as neutral to ratings. The bank is largely funded by customer deposits, which accounted for 74.6% of the total funding base as of 31 December 2024 from 74.5% in 2023”.
The rating note stated that relatively cheaper current and savings accounts (CASA) comprising 81.8% of customer deposits positively supports the Bank’s cost of funding which registered at 6.6% as of 31December 2024, comparing well with the broader banking industry average.
Depositor concentration however remains low and well diversified, with the top 20 depositors accounting for 1.2% of customer deposits as of 31 December 2024.
However, the bank’s liquidity position is considered weak, as reflected by the low GCR liquid assets coverage of customer deposits and wholesale funding of 7.3% and 0.2x respectively as of 31 December 2024.
“While we note that liquidity pressure is mitigated by the seasonality of the bank’s liquid asset base and the expected inflows from the proposed bond issuance, our liquidity assessment could be negatively impacted if the bank’s liquidity position does not materially improve over the next 12 months,” GCR stated.
The stable outlook reflects an expectation that asset quality metrics will hover around similar levels over the next 12-18 months, details from the rating note highlighted.
The GCR core capital ratio is expected to range between 27% and 30%, reflecting the good earnings retention and projected loan book. Additionally, rating analysts expect LAPO’s funding and liquidity position to be bolstered by the proposed bond issuance. #GCR Upgrades LAPO Microfinance Bank Rating Outlook#
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