Pacra Assigns Ratings To Sme Bank Limited

The Pakistan Credit Rating Agency Limited (PACRA) has assigned a long term rating of  "BBB" (Triple B) and short term rating of   "A3" (A Three) to SME Bank Limited (SMEBL). The ratings denote adequate capacity for timely payment of financial commitments.However, the ratings have 'negative outlook'

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The ratings primarily reflect majority ownership of the bank by Government of  Pakistan (GoP). The bank's standalone performance is increasingly under pressure on account of declining core income and rising operating expenses leading to continuous losses. The resultant equity erosion has significantly weakened the bank's risk absorption capacity. The government in recent budget has allocated PKR 1bln as fresh equity injection in the bank that when materializes is expected to help meet shortfall in regulatory capital requirement (PKR 2bln). Although the core team is committed to improvement; (i) inculcation of organization-wide performance culture, (ii) streamlining of systems & processes to minimize current inefficiencies, (iii) reduction in coststructure, and (iv) much needed capital, are prerequisites for the revival of the bank. SME Bank has limited deposit base but maintains adequate liquidity.

The ratings have been assigned negative outlook given the largely constraint profile of the bank. Clarity of GoP on the role that SMEBL should play would facilitate in developing a comprehensive business plan. The plan, inter-alia,elicit timely and sufficient injection of fresh capital, while indentifying key milestones to be achieved by the bank for self sustainability. Meanwhile,sustaining the asset quality and upholding good governance practices remain important.

About the Bank

SME Bank Limited (SMEBL) was incorporated in January 2002 as a result of  amalgamation amongst certain developmental institutions of the government. The bank commenced commercial banking operations in May 2005. It operates a network of 13 branches in 8 cities.

SMEBL is ~94% owned by Federal Government through Ministry of Finance (MoF), while remaining 6% stake is held by commercial banks. The overall control of SMEBL lies with government nominated seven-member Board of Directors (BoD).  Three of the board positions are ex-officio, while other three are independent businessmen. Mr. Majyad Aziz Balagamwala, an experienced businessman, is the board's Chairman since Mar-10. The CEO, Mr. Nasser Durrani, assumed the role in Dec-12 and has been associated with the bank since inception.