GCR Assigns LAPO Microfinance Bank Limited a National Scale Rating of BBB+(NG); Outlook Stable.

17 Aug 2017 In Rating Notifications

GCR Assigns LAPO Microfinance Bank Limited a National Scale Rating of BBB+(NG); Outlook Stable.

Lagos, 16 August 2017—Global Credit Ratings has accorded LAPO Microfinance Bank Limited (“LAPO Mfb” or “the bank”)  first time, national scale ratings of BBB+(NG) and A2(NG), in the long and short term respectively; with the outlook accorded as Stable.  The ratings are valid until May 2018.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings based on the following key criteria:

The ratings of LAPO Mfb reflect its strong competitive position as the market leader in the Nigeria microfinance banking subsector by size. LAPO Mfb is one of eight microfinance banks (“MFBs”) licensed to operate nationally in Nigeria presently. Furthermore, the profile of the bank’s management team (in terms of experience) is considered satisfactory.

LAPO Mfb’s capitalisation is considered acceptable, with total shareholders’ funds amounting to N13.6bn at FY16, translating to over 6.8x the statutory minimum requirement for its license category, and a capital adequacy ratio of 25% (compared with the 10% statutory requirement). The bank registered a strong compound annual growth rate (“CAGR”) of 36.8% in total capital in the four year period to FY16 on account of steady internal capital generation and successful capital raising initiatives.

LAPO Mfb’s asset quality (in terms of loans and advances portfolio) came under pressure in FY16, with the non-performing loan (“NPL”) ratio rising to 6.2%, having improved from the five-year high of 6.9% in FY14 to 4.7% in FY15. However, the provisioning level is considered adequate, while capital protection appears strong, considering the low net NPL/capital ratio of 5.6% at FY16.

The bank has displayed satisfactory liquidity metrics across the five year review period to FY16, with liquid and trading assets/total short term funding ratio of 27.3% at FY16, compared with the 20% statutory benchmark.

LAPO Mfb recorded steady improvement in profitability in the five year review period to FY16. Performance in FY16 was mainly revenue driven, as an increase in earning assets delivered a strong 37.7% rise in interest revenue to N23.9bn. Despite a significant 28.2% escalation in operating expenses (driven by staff related and traveling costs) and additional pressure from impairment charge rise, the bank ended with a pre-tax profit of N6.7bn, representing a 38.1% improvement over FY15. Overall, the bank achieved stronger ROaE and ROaA of 38.1% and 7.9% in FY16, up from 36.2% and 7.2% in FY15 respectively. An unaudited pre-tax profit of N3.4bn was reported for the first half of FY17, translating to annualised 70.1% of the full year budget.

A significant improvement in the bank’s market share, asset quality and liquidity position could trigger a positive rating action. A negative rating action may follow a decline in the bank’s profitability, as well as pressure on asset quality and liquidity indicators.

 

NATIONAL SCALE RATINGS HISTORY

Initial/last rating (June 2017)

Long term: BBB+(NG)

Short term:  A2(NG) 

Outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

Julius Adekeye

+23 41 462 2545

.(JavaScript must be enabled to view this email address) 

 

Committee Chairperson

Dave King

.(JavaScript must be enabled to view this email address)

 

 

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Bank and Other Financial Institutions, updated March 2017

Global Criteria for Rating Microfinance Institutions, updated March 2017

Nigerian Financial Institutions Overview, 2017

Glossary of Terms/ Ratios (February 2016)

 

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK:  HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.COM.NG.

 

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The ratings were solicited by, or on behalf of, LAPO Microfinance Bank Limited, and therefore, GCR has been compensated for the provision of the ratings.

LAPO Microfinance Bank Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.

The credit ratings above were disclosed to LAPO Microfinance Bank Limited with no contestation of/changes to the ratings.

The information received from LAPO Microfinance Bank Limited and other reliable third parties to accord the rating included the audited annual financial statements of LAPO Microfinance Bank Limited for five years, up to 31 December 2016 and other detailed information related to the bank’s operations.

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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