SECP Defers Raise in Minimum Capital Requirement for Leasing Companies

KARACHI (May 23 2009): The Securities and Exchange Commission of Pakistan (SECP) has deferred, for two years, the implementation of increase in minimum capital requirement for leasing companies.

This was announced by SECP Chairman Salman Ali Shaikh here on Friday while talking to media at the ceremony of launching of Year Book 2008 of the Leasing Association of Pakistan and Modaraba Association of Pakistan.

The minimum capital requirement for the leasing companies had to be increased from existing Rs 200 million to Rs 350 million by June 30, 2009, and to Rs 500 million by June 30, 2010. The chairman said that the decision had been taken due to the prevailing liquidity crisis, which had affected every sector.

He said that in-house badla would not be allowed. However, he said that an alternative leverage product, to replace CFS Mk-II, would be introduced in the stock market soon. He added that the committee was working on the new product and it was expected that the new leverage product would be introduced within a month.

Earlier, at the ceremony, the SECP chairman said that the liquidity crisis of the year 2008 had posed an unprecedented challenge to the entire financial sector in general and the non-banking finance companies in particular. “LAP and its member companies are therefore, required to exhibit greater responsibility and commitment by concentrating on enhancement of risk management capacities, research, product diversification, exploration and niche markets and promotion of good corporate governance,” he said.

The chairman said that SECP had always endeavoured to improve the regulatory framework for NBFCs with active participation and consultation of LAP. Recently, the 'Non-Banking Finance Companies & Notified Entities Regulations' were revamped in 2008 to make them more comprehensive and operationally flexible with appropriate risk management measures, which would help the industry to overcome the problems faced by it.

He said that the SECP was keenly focused on development of the modaraba sector, making it one of the fastest growing segments of the financial sector in Pakistan. He said that SECP encourages modarabas to take effective part in promotion of the Islamic financial regime. The SECP took various steps over the last couple of years to promote Islamic Shariah-compliant modes of financing and to improve the financial health of the sector, he added.

LAP chairman Teizoon Kisat in his address of welcome said that the performance of member companies during fiscal year ended for 2008 showed improvement over the previous year as profit before taxes increased to Rs 2,094 million from Rs 636 million.

The return on equity was 8.9 percent against 3.0 percent in a year back and returns on assets improved to 1.58 percent compared to 0.51 percent. Disbursements which are important criteria to assess the role of leasing companies in capital formation of the country dropped to Rs 34 billion compared to Rs 36 billion in 2007 and Rs 41 billion in 2006.

In fact the growth of leasing sector was stalled after 2006 due to intense competition from commercial banks. As a result of drop in volume of business investment in leased assets declined to Rs 71 billion in 2008 from Rs 74 billion in 2007.

Total assets of the leasing sector increased to Rs 136.6 billion from Rs 128 billion and total equity rose to Rs 25.9 billion as compared to Rs 21 billion. MAP Chairman Muhammad Shoaib said that the global financial crisis had created great opportunities for Islamic finance.

“The Islamic finance industry is continuously flourishing the world over and the estimated size of this industry is presently valued at $800 billion. This industry is one of the fastest growing financial segments in the world which is increasing around 20 percent annually,” he added. About the performance of modaraba sector in Pakistan, he said out of the 24 modarabas, 18 declared cash dividend between the ranges of 2.5 percent to 40 percent.

The profit of the sector stood at Rs 962 million as compared to Rs 749 million in the previous year showing an increase of 28 percent. Total assets of the sector have been increased to Rs 29 billion from Rs 26 billion of last year showing an increase of 12 percent. Former chairman of LAP, Bashir A Chowdary, thanked the SECP chairman for his continuous support for the growth of the leasing and modaraba sectors in Pakistan.

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