Draft PR
The Pakistan Credit Rating Agency Limited

Jhangeer Hanif

Saliha Sajid

Applicable Criteria

  • Methodology | Correlation between long-term and short-term rating scale (Jun 17)
  • Methodology | Criteria Modifiers (Jun 17)
  • Methodology | Bank Rating (Jun 17)

Related Research

  • Sector Study | Commercial Bank (Jun 17)
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PACRA Maintains Entity Rating of SME Bank Limited
 Rating Type Entity
 Action Maintain Maintain
 Long Term B B
 Short Term B B
 Outlook Developing Developing
 Rating Watch RatingWatch -

Recently, decision for five parties those have submitted the statement of qualification for SME Bank Limited, three of them are finalized and now bidding process will be commence under the auspices of the Privatisation Commission. Government is in process of divesting 93.88 percent shareholding of the SME Bank. This is an outcome of Government of Pakistan's endeavors to make SME Bank a vibrant institution by divesting GOP’s equity stake in bank along with the management control to a strategic investor. The Privatization commission has appointed Financial Advisory Consortium (FAC). A number of parties submitted their applications containing expression of interest and statement of qualifications on April 7, 2017. In response to the Privatisation commission, only five parties submitted the statement of qualification that had obtained documents at the initial stage and three of them are shortlisted. Privatization Commission is planning to complete this transaction by March, 2018. SBP has incentivised the transaction to provide support to the potential sponsors. The key highlight is the reduction in minimum paid up capital to PKR 6bln. This capital would be built in a staggered manner with initial injection of PKR 2bln and PKR 1bln each year for the next 4 years. The Bank will also be granted specialized Banking license by utilizing 60% to SME Sector and remaining 40% to the Commercial and Retail Sector.

On a standalone basis, SME Bank Limited has a stressed profile owing no announcement of budget by the Government. Due to continuous subdued performance of the bank, the equity base has been fully eroded (negative PKR 117mln at end-Sep17). Deposits are pre-dominantly from government linked entities; repo borrowings have been made from financial institutions on the back of government securities – leaving loss coverage to the deposit holders. Given continuous operational losses and no equity base, timely completion of privatization process is critical for the Bank.

PACRA would monitor the related developments which are going on. Rating would be reviewed once the transaction will complete and clarity as to the new ownership structure and pursuant strategy and capital injection plan is achieved.
Draft P
About the Entity
SME Bank Limited, incorporated in January 2002, commenced commercial banking operations in 2005. It operates a network of 13 branches and is ~94% owned by Federal Government through Ministry of Finance. Overall control of the bank lies with government nominated four member Board of Directors.and currently three positions are vacant. The CEO, Mr. Ihsan ul Haq Khan, assumed the role in Jun-14 and has prior experience in banking and finance.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.