Botswana’s top micro-lender, Letshego Holdings, has received favourable rating from credit ratings agency Moody’s, which says the consumer lending company has robust financial fundamentals despite elevated credit risks from its regional expansions.
The micro-financing institution which already has a P2.5 billion and R2.5 billion medium term note programme was affirmed by Moody’s as Ba3/ Not Prime issuer rating and was assigned Ba2 Corporate Family Ratings (CFR), with the credit rating agency disclosing that the assessment was based on Letshego’s solid capitalisation buffers and profitability, which is supported by high margins.
“Furthermore, the rating balances these strengths against Letshego’s sensitivity of its credit profile to changes in regulatory and legal frameworks, high exposure to foreign exchange risk, elevated asset quality risks, and dependence on market-sensitive wholesale funding; although actions are being taken to address this weakness,” according to Moody’s.
Letshego which popularised unsecured lending in Botswana has for years been trying to find ways to lower its cost of funding. The company has huge debts that amount to P4.7 billion with the bulk of it coming from commercial banks and note programmes. As a result, the company has sought to reduce its dependence on bank loan funding.
By growing their deposits, Letshego will have cheap access to funds which will then be loaned to other customers. Furthermore, Letshego says it continues to diversify its funding mix and utilise all available instruments to manage capital. Earlier this year in May the micro-lender received P256 million of funding from specialist international investors. New funders include development finance institutions, specialist investors who focus on micro and inclusive finance ventures, and impact investors.
The micro-lender operates in 11 countries with 6 deposit taking licences and has been achieving good growth rates over the years. Deposits from customers in 2018’s first half year results increased to P387 million, up 278 percent from the prior year. The money lending institution says Mozambique and Rwanda have led the group in deposit mobilization, attracting a mix of both institutions and retail savings.
The company has previously tried to apply for a deposit taking license but all that fell through because of the current regulatory framework which grants that privilege to commercial banks. Letshego maintains that multi-tiered licensing of financial institutions can work.
The favourable rating by Moody’s is on the back of another good rating for a Botswana based institution. Last month, Moody’s affirmed BDC issuer ratings at Baa2/Prime-2 upon application of credit ratings agency’ s new Finance Companies rating methodology, published last year December. Moody’s added that the outlook on BDC remains stable.
According to a statement from Moody’s, BDC’s long-term Baa2 issuer ratings incorporate a five notch uplift from its b1 baseline credit assessment (BCA), which reflect Moody’s assumption of a high probability of government support – BDC is wholly owned by government – as well as the company’s policy role and importance as Botswana’s leading development finance institution and the lack of legal barriers for its timely support.
Furthermore, the ratings agency said ratings for BDC factored in Botswana’ s A2 issuer rating – which acts as an anchor for potential support to BDC – and the very high default dependence, which reflects the strong probability that, in the event of a sovereign credit default, the risk of a potential crisis affecting BDC is very high, the agency said.
Moody’s revealed that BDC maintains strong liquidity metrics, as reflected by a significantly high coverage of maturing debt over the next 12 months, adding that liquidity will be further supported by a greater focus on long- term funding through a tenured note programme and locally issued bonds,and international funding from development finance institutions.
The ratings agency further noted that profitability should be more stable owing to a higher contribution from a less volatile interest income component, given increased lending in the asset portfolio and reduced reliance on dividends from equities.