ISLAMABAD: The government has delisted SME Bank from privatisation list as no bank is ready to acquire it due to its poor financial condition and monthly Rs 100 million loss, well informed sources told Business Recorder.
SME Bank Limited was established as a public limited company in October 2001, upon amalgamation of Regional Development Finance Corporation and Small Business Finance Corporation.
Under the Companies Ordinance 1984, Government of Pakistan holds 93.88% shares in the SME Bank, whereas the rest are held by the National Bank of Pakistan, United Bank, MCB Bank, Habib Bank, Allied Bank and Industrial Development Bank limited to the aggregate of 6.12%.
After completing due process such as approval of Transaction Structure and inviting EoI etc the following three investors were pre-qualified by the PC Board on June 02, 2020: (i) Pakistan Kuwait Investment Company (Private) Ltd & Pak Libya Holding Company (Private) Ltd; (ii) Veon Holding, BV (parent company of Pakistan Mobile Communications Ltd); and (iii) Saudi Pak Industrial & Agricultural Investment Company Ltd.
Sell-off programme: SME Bank delisted for lack of positive feedback from bidders, CCoP told
On January 28, 2021, Saudi Pak communicated its “no interest”, whereas the consortium of Pak Kuwait & Pak Libya submitted its response on February 17, 2021 seeking concessions for further engagement. Nonetheless, during the period from March to August 2021, Privatisation Commission in collaboration with Finance Division and State Bank of Pakistan (SBP) engaged with the prequalified bidders (PQBs) and held series of meetings to address the following observations: (i) MCR compliance (given that SME Bank has negative equity);(ii) SME Bank Licence; (iii) SPA provisions w.r.t. indemnities & warranties; and (iv) Veon Holdings - Proposed Merger with MMBL.
Recently, Ministry of Privatisation apprised the CCoP that the status/update on the SME Bank transaction was presented before the PC Board in its meeting held on November 25, 2021, wherein the Board was informed that the request of two bidders for provision of deposit of Rs 10 billion for a period of approximately 10 years either by the GoP or SBP was not agreeable being out of the scope of approved framework.
Further, two major incidents outside the scope of privatization transaction i.e., the FBR action against Mobilink on account of Income Tax for the tax year 2018 and SBP policy measure waiving IBFT charges during Covid period, led to VEON Holdings’ disengagement from the SME Bank privatisation.
According to sources, PC Board recommended placing the matter before the Cabinet Committee on Privatization (CCoP) for delisting of SME Bank from the Privatisation Programme, to enable the Finance Division and the SBP to proceed further with alternate options. Recommendations of the PC Board were considered by the CCoP in its meeting held on December 31, 2021, which constituted a sub-committee under the chairmanship of Federal Minister for Finance & Revenue for further deliberations on the matter.
Accordingly, the Committee convened series of meetings, under the chairmanship of finance minister and deliberated upon the matter and observed that the SME Bank was incurring a loss of around Rs 1.00 billion each year and maintaining the bank on ventilator was not a good option. It was directed to explore the possibility of merging it with NBP or any other bank.
The State Bank of Pakistan pointed out that due to continuously deteriorating financial condition, the SME Bank had sent a SOS call for urgent financial support from the financial support from Federal Government. The SBP inter alia requested Finance Division to: (i) immediately arrange necessary funds to meet the instant liquidity needs of the bank to avoid default in payments to its depositors and (ii) initiate the process of winding down at the earliest to avoid further accumulation of losses, and possible drag on exchequer.
During the ensuing discussion, Finance Minister/ Chairman, CCoP observed that SME was continuously incurring heavy losses due to deteriorating financial condition, therefore, this situation may affect its depositors. The governor, SBP expressed the concerns that SME was incurring a loss of Rs 100 million per month for the government, which had accumulated to Rs 8 billion.
It was added that SME bank was facing severe liquidity problems and needed immediate government intervention to avoid default and in making payment to its depositors.
Copyright Business Recorder, 2023
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