Lasco Financial shores up cash defences amid loan losses
Lasco Financial’s microfinance arm has booked losses of $650 million on impaired loans, a disclosure made in its newly released annual report that better defined the scope of the fallout from the coronavirus that the company first warned about a month ago.
Lasco Microfinance Limited, LASFM, lends to micro businesses and the self-employed, a high-risk market in which around 17 per cent of the loans it sells are unsecured.
The impairments spun group company Lasco Financial Services Limited, LFSL, from healthy annual profit of $282 million to a net loss of $57 million at year ending March. The bleed extended into the first quarter ending June, with LFSL posting nearly $106 million of net losses – wiping out in the process profit of $91 million recorded in the June quarter of 2019.
The company’s loan portfolio and other receivables also shrank by around $452 million over the past financial year to $1.91 billion then shed nearly $140 million more in the April-June quarter to close at $1.77 billion.
Now, the company is boosting its cash holdings - adding nearly $220 million of liquidity in the past three months alone – to be ready for any eventuality.
LASFM’s customer base is largely made up of taxi operators, bar owners, vendors at school gates, and employees of security companies. Many of them saw their livelihoods erode or disappear – and with it, the income that would have serviced their loans - when the Government began imposing restrictions on movements in March and subsequently locking down the economy, inclusive of schools, bars and entertainment spots, and the tourism sector.
Lasco Financial, which is led by Managing Director Jacinth Hall-Tracey, took a bigger bet on the microlending market when it bought out CrediScotia from banking conglomerate Scotia Group Jamaica two years ago. Under the subsequent restructuring of the group, the microfinancing operations were rebranded as Lasco Microfinance Limited.
The current annual report indicates that the subsidiary did not have its own boss, but that has now changed, with an announcement last week that former credit union executive Hopeton Morrison has been hired as general manager for LASFM.
Hall-Tracey has not responded to requests for comment on the strategy for Lasco Microfinance, instead referring the Financial Gleaner back to the notes in the accounts, but Morrison’s hiring is a clear indication that the company sees the need for a dedicated captain for the operation. Lasco Financial’s company’s other businesses include cambio services and remittances, elements that were said in the annual report to be holding their own.
The microfinance segment represents 38 per cent of Lasco Financial’s total loan book, with 17 per cent of the loans being unsecured. LASFM has been offering moratoriums and restructuring of loans to stave off defaults.
If the group stripped out impairment losses from Lasco Microfinance, LFSL said it would have posted $882 million in operating profit at year ending March, or more than three times the $230 million of operating profit booked in the period.
Most of the midline profit went into servicing LFSL’s $1.8 billion of debt.
Signs that LFSL’s past financial year would have been a poor one were evident from last summer, with underperforming profit reported in different periods.
Still, it is rare for Lasco Financial to bleed at the bottom line. Since its listing on the stock market in October of 2010, Financial Gleaner records indicate that before this year, LFSL booked a loss in one period only over the decade – negative 1.3 cents per share in the July-September quarter of 2019.
Jamaica’s economic lockdown is steadily being rolled back, but the country is not yet back to normalcy amid continued spread of COVID-19, and companies are still counting the impacts and estimating what is to come. Lasco Financial expects to have a better read on its own position by the end of its second quarter. In the meantime, the company is attempting to secure its cash amid expectations that loans may fall further into arrears.
“Critical to ensuring that our company has the ability to navigate the unforeseen is being able to manage our liquidity,” said Hall-Tracey in her statement to shareholders published in the annual report.
“Additional emphasis was placed in the last three quarters on strengthening our collections and debt management, which also yielded additional cash,” she said.
The company has grown its short-term deposits and cash holdings by more than 30 per cent in the space of three months to around $942 million as of June. As a safeguard, it also temporarily restricted the growth of its loan portfolio and reduced non-essential expenditures.