LASCO Financial Services’ effort to return its microfinance business to profit is being complicated by rising arrears, with almost one-third of the company’s loan portfolio past due at the end of March.

The company’s audited accounts show $453.8 million of its $1.43-billion gross loan book was at least one month overdue.

A year earlier, $370 million of a smaller $1.24-billion portfolio was past due. That means arrears grew by 22.6 per cent during the year, compared with 14.7 per cent growth in the overall loan book.

The proportion of loans past due consequently moved from 29.8 per cent to 31.8 per cent.

More than half of the overdue amount had been outstanding for over a year.

Loans in that category rose from $189.5 million to $230.9 million, accounting for 50.9 per cent of all past-due balances and 16.2 per cent of the entire loan portfolio.

Another $77.9 million was between four and 12 months past due, while $144.9 million was between one and three months overdue.

Past-due loans are not necessarily credit-impaired or unrecoverable. However, older arrears generally require heavier provisions for possible losses.

The company increased its allowance for expected credit losses from $238.9 million to $283.5 million. Of that amount, $205.2 million was attached to loans more than 12 months past due.

LASCO Microfinance Limited, the wholly owned subsidiary that operates the loan business, remained loss-making during the year despite an improvement in its results.

Management said the subsidiary recorded a pre-tax loss of approximately $49 million and that controls introduced into the business had reduced its losses by more than 61 per cent.

The group’s subsidiaries recorded a combined after-tax loss of $35.8 million, down from $88.9 million a year earlier. With the Barbados subsidiary inactive, LASCO Microfinance accounted for most of that result.

LASCO said it had stepped up recovery efforts and was seeing encouraging early results. The annual report did not disclose how much of the amount past due at March 31 had since been collected or returned to performing status.

The company said it was also continuing legal action against delinquent customers, tightening credit approvals and seeking to attract borrowers with lower risk profiles.

“We continue legal actions against delinquent customers, prioritising prudent risk management and conservative credit approvals and increasing the pipeline of customers with lower-risk profiles,” LASCO said in its annual report.

A consultant was brought in to improve the subsidiary’s loan-disbursement processes, while the company is replacing its loan-management system.

Management said further improvement in the group’s profitability depends on completing the turnaround of the microfinance business.

Despite the pressure in the loan portfolio, LASCO Financial’s net profit rose 40 per cent from $58.6 million to $82.1 million during the year.

Revenue was virtually flat at $2.15 billion, but expenses declined 2.2 per cent to $1.94 billion. The savings lifted operating profit by 32.7 per cent to $209.4 million.

All of the full-year profit — and more — was made during the first six months.

LASCO earned $40.5 million in the first quarter and $47.7 million in the second, taking first-half profit to $88.2 million. Profit then dropped to $1.8 million in the October-to-December quarter before the company posted a $7.9-million loss during the final three months.

It therefore lost a combined $6.1 million during the second half.

LASCO blamed the third-quarter slowdown partly on Hurricane Melissa, which disrupted its agent network and affected remittance transactions. It said low returns from cambio operations then pushed the company into a loss during the fourth quarter.

The remittance business has also not fully recovered volumes lost during previous outages.

LASCO said the affected transactions would have to be “reacquired” through additional partnerships and other initiatives.

While the company added agents during the year, many merely replaced locations that had closed. Management said it can take as long as six months to replace an agent because new operators must satisfy regulatory and operational requirements.

The company is now hoping to achieve a net increase in agent locations and bring a new remittance partner on stream during the current financial year.

LASCO also said announced Bank of Jamaica interventions in the foreign exchange market had limited the potential profitability of cambio operators. It did not put a figure on the impact on its business.

At the same time, the company continues to incur the cost of maintaining cash-handling operations while investing in digital services.

Management described this as a “dual burden”, noting that cash remains the preferred transaction method for many customers even as margins in the remittance and cambio businesses decline.

LASCO is betting that wider use of its LASCO Gold Visa prepaid card will help it win back remittance volumes and spread the fixed cost of its digital platform across more transactions.

For the current financial year, management said it will prioritise “optimisation over expansion”, with the turnaround of LASCO Microfinance, growth in remittance volumes, and a net expansion of its agent network among its main priorities.