SBP lures banks towards SME financing

KARACHI: State Bank of Pakistan (SBP), while clarifying its prudential regulations regarding Small and Medium Enterprises (SMEs) of the country has fixed a monetary threshold of Rs300 million for three types of SMEs.

Banking Policy Department (BPD) of the SBP while replying to various questions raised by the financing agencies of the country has said any concern (SME), falling under trading or service or manufacturing categories, having “net sales not exceeding Rs300 million as per its latest financial statement” would be classified as a SME.

However, the SBP said: “A trading or service SME would be that with total assets at cost excluding land and building up to Rs50 million”. “A manufacturing SME would be that with total assets at cost excluding land and building upto Rs100 million”.

The SBP has issued these new clarifications so that shy bankers of the country could speed up their financing to the SME sector.

In order to facilitate banks in the consumer-financing sector, the SBP has “deferred” the mandatory creation of reserves for consumer financing by December 31, 2005.

Earlier, all banks and NBFCs engaged in consumer banking were required to create such reserves to offset losses, accrued due to non-recovery of these loans. National Bank of Pakistan (NBP) was the first to create such reserves.

Under prudential regulation number R-4, banks and NBFCs were directed to create reserves, on consumer loans “booked by banks and DFIs before January 01, 2004, and accordingly, the reserves at the required rate of 1.5 per cent and 5 per cent were to be created against the incremental amount of the consumer portfolio”.

The SBP said: “In order to facilitate banks and DFIs in complying with this requirement, they are allowed to stagger the required amount of reserves in four equal quarterly installments and ensure full compliance by December 31, 2005”.

With regards to re-scheduling and re-structuring of loans of sick units and its subsequent impact on treatment for “making provision” in balance sheets of the banks, the BPD has said: “While calculating the remaining provision required to be held after cash recovery and reversal of provision, there against, the bank and DFIs will still enjoy the benefit of netting-off the amount of liquid assets and Forced Sale Value (FSV) of fixed asset (of sick units) from the outstanding amount”.

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