KARACHI: More than 10 investors have so far expressed interest in acquiring majority stake of loss-making state-owned SME Bank Limited as the government has geared up efforts to complete the divestment process before the end of this fiscal year, sources said on Thursday.
“SME Bank is catching investors’ eye as more than ten investors have submitted their applications so far, containing expression of interests and statements of qualifications for acquiring up to 93.88 percent in the share capital of the bank,” a source, close to the transaction, told The News.
“The bank is receiving a substantial interest from various domestic and foreign businesses, including two development finance institutions and one microfinance bank,” said the source. In January this year, the cabinet committee on privatisation approved a proposal of divesting the government’s strategic equity stake in SME Bank.
The public sector’s bank, the first specialised financial institution for small and medium enterprise (SME) sector, started operation in 2005. Its net assets plunged to Rs68 million at the end of September 2016 from one billion rupees in 2013.
The bank has been operating with a paid-up capital of Rs2.39 billion since 2007 as the central bank exempted the bank to meet the minimum capital requirement of Rs10 billion. The bank has a small network of 13 branches across the country.
The sale of SME Bank is part of privatisation programme of the present government to improve the performance of the loss-making public sector entities and reduce its fiscal deficits. The Privatisation Commission has already extended the deadline for the submission of the expression of interests and other related documents for the SME Bank to April 7 from March 17.
Bankers said the deadline was extended to attract more investors and give them additional time to complete their documents. “But, in any case the whole process is likely to complete before June 30,” the source added. “On receiving applications, the commission’s transaction committee will conduct a prequalification round, evaluate the documents of the potential investors and share them with the State Bank of Pakistan (SBP) to get its approval for starting due diligence.”
Bankers said it’s too early to comment who would be the buyer. “There is a sense that any development finance institution or a foreign microfinance bank is the most likely buyer,” an executive of a mid-tier bank said. “SME Bank can be a right choice for a multinational institution, interested in promoting microcredit along with the financial inclusion strategy in the country.”
Under the national financial inclusion strategy, the SBP planned to extend credit to 300,000 SMEs and increase the proportion of SMEs financing to private sector loans from seven percent to 15 percent by 2020.
Financing to medium and small-size business rose 14 percent to Rs298 billion during the last fiscal year. Private banks accounted for 67 percent share of the total outstanding loans of SME sector, followed by public sector lenders (27 percent). The banker said banks find it trickier to extend loans to SMEs on account of rising debts, but this sector has a lot of potential.
Analysts said microfinance banks see SME Bank as an opportunity to provide technology-enable financial and branchless banking services. They can also be incentivised after a change in business model due to credit/guarantee schemes introduced by the central bank.
The SBP offers a variety of incentives, including youth business loan, credit guarantee and export finance/refinancing schemes to banks to promote SME sector. Analysts said the potential investor will be able to avail these incentives, subject to fulfillment of requisite operational requirements, as per transaction overview of SME Bank available on the commission’s website. The SBP will also allow a minimum paid-up capital requirement of six billion rupees over five years to the buyer of SME Bank.