SME BANK’s MERGER WITH NBP WILL DEPRIVE SECTOR OF SPECIFIC BANK

The Union of Small and Medium Enterprises (UNISAME) has urged the federal finance minister Ishaq Dar to revive and strengthen the SME Bank and make it capable to serve the SME sector for which it was created as an SME specific bank. The sector is perturbed by the plan to merge it with National Bank of Pakistan (NBP) as this will mean the only specific SME Bank will no more exist and lose its identity.

Zulfikar Thaver president UNISAME said SME Bank being government owned entity was created to exclusively serve the SME sector in Pakistan.

He urged the finance minister and the State Bank of Pakistan (SBP) to inject equity in the SME Bank and revamp it to make it professionally sound and capable of serving the SME sector rather than merging it with NBP or any other bank.

Unlike private banks, 95% of SME Banks existing loan portfolio is geared towards Small Enterprises. The yard stick for judging the quality of loans to be on merit is the percentage of their defaulted loans. SME Banks defaulted loans are almost 25% whereas industrial standard of all banks in Pakistan are around 32%, which are also lenders to SME sector (Dec. 2013), which is almost 7% less.

Thaver who was the chairman of the definition committee in the SME Policy 2007 said In the latest definition of SBP, the Small enterprises has now been differentiated and identified as “Small Enterprise can avail exposure up to Rs 15 million from a single Bank/DFI or from all Banks/DFIs”. Whereas “Medium Enterprise (ME) can avail exposure from Rs.16 million up to Rs.100 million from a single Bank/DFI or from all Banks/DFIs. Total exposure (including leased assets) availed by a single medium Enterprise from the Banks/DFIs shall not exceed Rs 200 million”.

The sole reason for this differentiation was that the bulk/majority of the SME’s fall within the sphere of “Small Enterprises”; which were/are being ignored by private banks due the administrative costs incurred on processing of their loan applications as they hardly maintain proper books of their accounts. Whereas the loans for Medium Enterprises especially Rs. 50 million and above are easy to process and more lucrative for them.

In 2004 SME Bank was put on the list of privatization, since then neither the Bank was privatized nor any further equity was injected into the bank. The minimum mandatory equity requirement to run a bank in Pakistan is Rs. 10 billion and minimum numbers of branches are 100. Whereas since inception of SME Bank only Rs. 1.5 billion has so far been injected into it by the Government (present equity Rs. 600 million). The business and out reached to SME sector was curtailed due reduction in branches to only 13.

In the round table conference Prof Ahsan Iqbal federal planning minister said that “it is very unfortunate that we put an entity on list of privatization and then forget about it”. SME Bank can be a one stop shop and an engine in realization of the economic growth of SME sector in Pakistan and can actually play the main role in realization of 2025 vision of the government; if required equity is injected into it and the number of branches is increased from 13 to 200, so that each and every SME (especially Small Enterprises) can have easy excess to loan facility on merit.

To help the government in achieving the desired economic growth of our country, UNISAME is requesting the finance Minister for injecting the required equity and permission to open more branches. SME Bank may also be removed from the list of privatization, so that it can work for the purpose for which it was created by the government.

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