SBP announces relief package for households, businesses to cushion COVID-19 impact

• The central bank has increased the bank’s overall pool of loanable funds.
• The regulatory limit on the extension of credit to SMEs has been permanently increased from the existing regulatory retail limit of Rs125 million per SME to Rs180 million with immediate effect.

The State Bank of Pakistan (SBP) and Pakistan Banking Association (PBA) has issued a relief package for households and businesses to cope with the impact of COVID-19 pandemic.

“This package will help relevant stakeholders including households and businesses (microfinance, SMEs, corporates, commercial, retail, and agriculture) to manage their finances through this temporary phase of disruption,” the central bank said in a statement.

Among the key highlights of the package, the central bank has increased the banks’ overall pool of loanable funds, which will support the banking sector to supply additional loans to businesses and households. SBP has reduced the Capital Conservation Buffer (CCB) from its existing level of 2.50 percent to 1.50pc.

This will enable banks to lend an additional amount of around Rs800 billion, an amount equivalent to about 10pc of their current outstanding loans.

Secondly, the regulatory limit on the extension of credit to SMEs has been permanently increased from the existing regulatory retail limit of Rs125 million per SME to Rs180 million with immediate effect. This measure will facilitate banks to provide more loans to SMEs, which currently stands at around Rs470 billion.

Furthermore, borrowing limits for individuals from banks have been increased for one year. SBP has relaxed the Debt Burden Ratio (DBR) for consumer loans from 50pc to 60pc. This measure will allow about 2.3 million individuals to borrow more from banks in this time of need.

The Banks and DFIs will also defer the payment of principal on loans and advances by one year. “To avail this relaxation, borrowers should submit a written request to the banks before 30th June 2020. They will, however, continue to service the mark-up amount as per agreed terms and conditions,” the SBP said.

The deferment of the principal will not affect the borrower’s credit history and such facilities will also not be reported as restructured/rescheduled in the credit bureau’s data. The total amount of principal coming due over the next year is about Rs4,700 billion.

For borrowers whose financial conditions require relief beyond the extension of principal repayment for one year, SBP has relaxed the regulatory criteria for restructuring/rescheduling of loans till 31^st March 2021.

The loans that are re-scheduled/restructured within 180 days from the due date of payment will not be treated as defaults. Banks would also not be required to suspend the unrealized mark-up against such loans. In addition, the timeline for the classification of “Trade Bills” has been extended from 180 days to 365 days.

The central bank has also reduced margin call requirements against bank financing from 30pc to 10pc. Banks have also been allowed to take exposure to borrowers against the shares of their group companies. Banks have currently extended loans in excess of Rs100 billion against listed shares.