Liabilities overload: SME Bank no more financially viable, govt says

Considers its merger with NBP or making it subsidiary.

ISLAMABAD:

In yet another case of mismanagement of a national asset, the government said on Saturday that SME Bank was no more financially viable.  With very few options, the government is deciding to either merge the small and medium enterprises bank with another financial institution or make it a subsidiary.

The audited accounts of SME Bank, up to December 2014, revealed that it was in no position to sustain with Rs5.2 billion worth of liabilities, according to a handout issued by the finance ministry. It added that Finance Minister Ishaq Dar chaired a meeting in an attempt to find a solution.

SME Bank President Ihsanul Haq Khan gave a presentation on the current position of the bank. The meeting discussed future prospects under different proposed arrangements including its merger with the National Bank of Pakistan, said the Ministry of Finance.

The other option was to make it a subsidiary of the NBP, said an official who attended the meeting.

The meeting was also attended by senior officials from SME Bank, State Bank of Pakistan and National Bank of Pakistan.

The SME sector is the backbone of the economy and remains under-funded as private commercial banks are reluctant to take exposure in the risky SME sector. However, years of mismanagement has weakened the government-owned SME Bank, which is consequently no more in a position to give out loans.

In the third quarter, ending on September 30, 2014, the bank incurred Rs108.8 million losses after taxation. Its assets stood at Rs8.42 billion as against liabilities of Rs7.8 billion during the same period.

In past, the government had also amalgamated the National Development Finance Corporation with the NBP.

SME Bank officials said that it had handed over Rs5.5 billion recoveries to NBP in 2010. However, the NBP could recover only Rs32 million, as the issue was not on its priority list. The SME Bank was now keen to back this portfolio from the NBP, if the government does not merge it with the NBP.

The SME bank would have been a great national asset if it had been professionally managed in the past, said Dar. He said it would have proven to be an effective source for development of SMEs, adding that the government wanted the bank to be functional and continue its work following the best practices.

The finance minister directed the SBP to suggest concrete proposals in a week’s time on how to turn the SME into a truly vibrant finance institution. “These proposals would be discussed in the next meeting and it will be ensured that the bank’s valuable services are available for the development of the SMEs,” Dar remarked.

Recently, the United States Agency for International Development (USAID) entered into a partnership with four Pakistani banks to partially underwrite the losses that these entities may face as a result of giving loans to small and medium enterprises

Initially, the US will provide $10 million that will back $60 million worth of loans. The USAID entered into agreement with Bank Alfalah, JS Bank, Khushhali Bank and First Microfinance Bank.

According to some estimates, of the 3.2 million businesses in Pakistan, nearly 3 million are small and medium sized. The small and medium-sized businesses produced more than 30% of the country’s gross domestic product and one-fourth of the nation’s exports. The sector is estimated to be absorbing three-fourth of the industrial workforce.

Published in The Express Tribune, March 29^th, 2015.

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