SMEs' ap­petite for bank credit grow­ing

The Pak Banker - - COMPANIES/BOSS - Staff Reporter

Credit-wor­thy small and medium en­ter­prises are now get­ting fresh loans a bit more eas­ily as banks are en­cour­aged to lend more mainly by fall­ing loan in­fec­tion ra­tio and promis­ing busi­ness gen­er­ated by this vi­tal sec­tor.

Net lend­ing to the SMEs has now turned pos­i­tive af­ter hav­ing re­mained neg­a­tive till two years back. The lenders see bright prospects of growth in SME fi­nanc­ing on the back of a 4pc­plus eco­nomic growth in the last two fis­cal years and pos­si­bil­ity of a slightly higher growth dur­ing this year. They say if the SMEs get them­selves reg­u­larised as a re­sult of the on­go­ing doc­u­men­ta­tion drive, the bank fi­nanc­ing to the sec­tor should grow more.

The most im­pres­sive per­for­mance is of Is­lamic banks whose SME fi­nanc­ing has more than dou­bled in FY15. Be­tween Septem­ber 2013 and Septem­ber 2015, net fresh bank fi­nanc­ing to SMEs to­talled Rs26bn, break­ing an ear­lier two-year spell of net neg­a­tive loan­ing. In the com­par­a­tive pe­riod of 2011 and 2013, the net fresh lend­ing had rather con­tracted by Rs42bn, drag­ging down the out­stand­ing stock of ad­vances from Rs278bn to Rs236bn.

Mean­while, loan in­fec­tion ra­tio of the sec­tor has fallen from 38.7pc in Septem­ber 2013 to 31.6pc in Septem­ber 2015 which raises hopes for fur­ther in­crease in credit. Bankers at­tribute larger lend­ing to such key fac­tors as rise in credit de­mand by en­ter­prises and up­grad­ing of a num­ber of SMEs from 'not credit wor­thy' to 'credit wor­thy' cat­e­gory.

Also, the up­dated SBP guide­lines en­abled banks to lend more with im­proved chances of re­cov­ery in a grow­ing econ­omy.

Bankers also note three pos­i­tive de­vel­op­ments. First, many SMEs have straight­ened their fi­nan­cial man­age­ment which re­duced their loan in­fec­tion and made them el­i­gi­ble for fresh work­ing cap­i­tal.

Se­cond, SMEs in food pro­cess­ing and pack­ag­ing, dairy and milk, elec­tri­cal and elec­tronic ap­pli­ances, agri­cul­tural and live­stock, farm­ing tools and ma­chin­ery, con­struc­tion ma­te­ri­als, iron and steel and pa­per and pack­ag­ing ma­teri- als have ex­panded their pro­duc­tion op­er­a­tions cre­at­ing de­mand for long-term loans. And third, ser­vice sec­tor SMEs have shown a great ap­petite for bank funds.

How­ever, the lat­est SBP quar­terly re­port on de­vel­op­ment fi­nance shows that de­spite some im­prove­ment in SME fi­nanc­ing, the growth in lend­ing is very low, about 3.2pc in FY15.

The re­port in­di­cates that the SMEs in ser­vice sec­tor (ac­count for 23pc of to­tal SME loan­ing) are more promis­ing in na­ture. Bankers also say they have en­ter­tained credit re­quire­ments of a wide range of ser­vice pro­vid­ing SMEs, from busi­ness con­trac­tors par­tic­u­larly in con­struc­tion in­dus­try to dis­tri­bu­tion com­pa­nies es­pe­cially those deal­ing with FMCGs to call cen­tres to eater­ies to IT start-ups to on­line mar­ket­ing com­pa­nies.

The SME lend­ing of banks is, how­ever, far from be­ing evenly dis­trib­uted. Whereas the state-run banks are do­ing well in this area mainly due to ac­com­mo­dat­ing spill-over credit de­mand of govern­ment-spon­sored schemes and pack­ages, the lo­cal pri­vate banks are still too cau­tious, the SBP re­port re­veals.

The most im­pres­sive per­for­mance is of Is­lamic banks whose SME fi­nanc­ing has more than dou­bled in FY15. Ex­ec­u­tives of Is­lamic banks link it to a fast grow­ing pro-Shariah bias of SME bor­row­ers and the fact that they are mar­ket­ing fi­nan­cial prod­ucts quite ag­gres­sively.

"Be­sides trad­ing and ser­vices, SMEs need more of re­volv­ing funds and Is­lamic banks are liq­uid enough to keep re-em­ploy­ing short-term funds par­tic­u­larly in the ab­sence of a ful­lyfledged Is­lamic in­ter-bank money mar­ket," says a se­nior ex­ec­u­tive of Meezan Bank.

A few months ago, the SBP is­sued a ques­tion­naire for ob­tain­ing a com­plete pic­ture of SME lend­ing by banks. "The find­ings of this sur­vey are be­ing fi­nalised, but ini­tial com­pil­ing throws enough light on what is miss­ing where and how the gaps can be filled in wide ar­eas of op­er­a­tions rang­ing from bank pro­cesses of credit ap­proval to branch level hu­man re­source in­volve­ment."

An of­fi­cial of the Sindh Bureau of Sta­tis­tics (SBS) told this writer that the SBP and the bureau are likely to sign an agree­ment whereby its hu­man re­sources will be used to as­sess credit re­quire­ments of man­u­fac­tur­ing SMEs of the prov­ince.

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