OMAP urges Tarin to ask banking sector to announce ‘clear-cut’ lending policy

LAHORE: Oil Marketing Association of Pakistan on Wednesday demanded that Minister for Finance and Revenue Shaukat Tarin should give directions to the banking sector to announce a clear-cut lending policy for Oil Marketing Companies (OMCs).

In a letter written to Federal Finance and Revenue Minister Shaukat Tarin, Chairman OMAP Tariq Wazir Ali requested the finance minister he should ensure that banks should provide lines to the creditworthy companies on basis of revised requirements considering the factors described above.

The letter was written after reports of the biggest default that occurred in the banking history of Pakistan when one of the leading OMC defaulted with all the banks and as per market information, total default amount exceeds 58 billion rupees.

As per the letter that after this default, naturally, every bank is now cautious and careful towards the whole industry.

“We hope you would kindly agree that within the industry, within the broad parameters and industry dynamics, each company has its own operational needs, liquidity requirements, and of course creditworthiness of the sponsors. We understand that all the banks are in the process of identifying the reasons and justification for this default and dig into the reasons for being bullish on this company and lending a huge amount which ultimately resulted in default”, the letter said.

According to the chairman OMAP that subsequent to default, we have observed with a great concern that attitude of banks and particularly a paradigm shift was observed in the lending policy of a state-owned bank. He also said that following the footstep of this bank, private banks are also taking this line and asking their customers for immediate reduction of their credit lines.

This situation has created a panic in the market and any further pressure might lead to defaults of other OMCs with the banks. We do understand that banks are the custodian of public money and need to invest very carefully. However, we request your support for good quality, credible, and committed sponsors.

“The companies with an excellent track record, low leverage and high profitability are being discouraged and being shown exit and being asked to search other funding avenues. The situation has very quickly and significantly deteriorated following the action from the FIA as reported in the press”, Tariq added.

He also said that after these actions and news reports, banks and particularly the state-owned bank has stopped their work on facilities at a time when oil prices were at historic highs putting the sector under pressure.

Tariq Wazir Ali further stated: “The situation needs urgent attention since the increased volumes due to economic recovery coupled with high rupee depreciation and record oil prices are putting immense pressure on OMCs and further pressure on OMCs may prove to be the last nail in the coffin. Additionally, as per license requirement by OGRA OMCs are bound to hold 20 days of inventory stock, which causes an additional inventory holding cost”.

He noted: “We support strict and swift action against anyone who has broken the law and caused a loss to the banks and the National exchequer but we request that the undue pressure by bank employees and creating fear in the industry needs to be immediately stopped. Failure to do so will not only damage the industry but also deter any future investment in the sector, both local and from abroad”.

It is worth to be noted that during H1FY 2022, sales of POL products in the country have increased by 24 percent as compared to last year, and Motor Gasoline (Petrol), HSD (Diesel) & Furnace Oil (FO) consumption is up by 14 percent, 27 percent and 38 percent respectively. The surge in economic and trade activities, growth in large-scale manufacturing, higher HSD demands from the agriculture sector, robust growth in automobile manufacturing and sales, increase in domestic tourism and various other factors have caused this growth.

During FY21, 10.0 million metric tons of POL products valuing USD 4.80 were imported by OMCs in Pakistan.

The working capital requirements are increasing due to PKR depreciation, an increase in international oil prices, and domestic demand. As of Sept 2021, an average price increase of 50 percent has been observed since Jan 2021 (USD 81.56/barrel vs USD 54.38.barrel). In addition, PKR has also depreciated by 7 percent since Jan 2021.

Due to world economies emerging out of corona-related lockdowns, causing a sharp increase in commodity prices, internationally, YTD Crude Oil, MS, HSD & FO prices are up by 70 percent, 66 percent, 57 percent and 64 percent respectively.

Copyright Business Recorder, 2022