Banks disburse Rs126bln loans under Rozgar finance scheme

KARACHI: Banks have disbursed around Rs126 billion under a concessional financing scheme announced in April for businesses to bear wages and salary expenses amid the coronavirus crisis.

The State Bank of Pakistan (SBP) on Monday said the banks approved the loans for 2,068 businesses covering wages and salaries of more than 1.2 million employees.

The SBP introduced the refinance scheme to support employment and prevent layoff of workers in April to counter the negative impact of COVID-19 on the economy. The scheme provides concessional financing to businesses for wages and salary expenses, provided they commit to not lay off their employees for the period of the loan.

The scheme was later complemented by a risk sharing facility of the government for small and medium (SME) enterprises with turnover of up to Rs2 billion. Under this facility, the government bears up to 60 percent first loss on the principal amount portion of disbursed portfolio for SME borrowers whereas 40 percent risk coverage is available for small corporates.

The objective of the facility is to incentivise banks to extend loans to SMEs and small corporates, to whom they may not cater to for risk considerations. The scheme was available till June-end earlier, however, SBP decided to extend the validity of this scheme by another 3 months to end September.

Soon after the introduction of the scheme, a large number of applications to avail financing were received by banks but their approvals remained slow. However, with the continuous efforts of SBP, banks streamlined their processes and pace of loan approvals increased.

At the end of April, only 18 percent of loan applications were approved. This has increased to 76 percent by 10 July. Similarly, the amount of loans approved against the requested amount also improved. The acceptance ratio for amount of financing increased from 26 percent at April-end to 82 percent on 10 July. Consequently, the number of employees benefitting from the scheme in terms of acceptance ratio has also increased from 26 percent to 85 percent during the same period.

Out of the total approved amount, Rs31 billion were for 1,449 SMEs and small corporates under the risk-sharing facility, providing benefit to 280,437 employees. Relative to the initial situation related to Rozgar scheme, in terms of processing and approving the requests for financing, banks performed better in catering the requests and improved further over time.

The acceptance ratio, both in terms of number of applications and amount increased from 35 percent and 37 percent, respectively on 15 May to 72 percent and 71 percent on 10 July. Following similar trends, the total number of employees benefitting from the acceptance of financing requests increased from 36 percent to 75 percent during the same period.

“The performance of banks, however, in terms of processing the number of applications and financing approved is limited to few banks,” SBP said. Among the top performing five banks, for both, JS Bank Limited, Habib Bank Limited, Bank Al-Habib Limited, Bank Alfalah Limited and Askari Bank Limited have contributed the highest in terms of both approving the number of applications and amount since the beginning of this scheme.

The top-performing five banks provided Rs18.1 billion or 58 percent of the overall approved financing. Their share declined from 61 percent earlier on 12 June showing that other banks have improved their performance. Their individual performance is also reflected from the fact that the cumulative approved financing by these banks ranged from Rs2.2 to Rs4.6 billion.

In contrast, the least performing five banks comprise Bank Islami, MCB Bank, First Women Bank, Standard Chartered Bank (Pakistan) Ltd. and Bank of Khyber. In these banks both the number of applications and amounts approved are very low, ranging in meager 7 to 29 and Rs103 to Rs389 million, respectively. Among these least performing five banks, there was some improvement as a major bank, NBP, exited the list and was replaced by Bank Islami.