Blog

KARACHI: Banks have approved around Rs126 billion under soft loan scheme to 2,068 businesses in meeting financing requirement for salaries and wages in the wake of difficulties faced due to coronavirus pandemic, State Bank of Pakistan (SBP) said on Monday.

The SBP said that Under the Scheme, on overall basis, up till July 1, 2020, financing of Rs125.9 billion has been approved by banks for 2068 businesses covering wages and salaries of over 1.2 million employees.

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 2020, only 18 percent of loan applications were approved. This has increased to 76 percent by July 10, 2020.

Similarly, the amount of loans approved against the requested amount also improved. The acceptance ratio for amount of financing increased from 26 percent at the end of April 2020 to 82 percent on July 10, 2020.

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.

To counter the negative impact of Covid-19 on the economy, the central bank introduced the refinance scheme to support employment and prevent layoff of workers, commonly known as SBP RozgarScheme, in April 2020.

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 (RSF) of the Government of Pakistan (GoP) for SMEs and Small Corporates with turnover of up to Rs2 billion.

Under this facility, the federal 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 this facility is to incentivize banks to extend loans to SMEs and Small Corporates, to whom they may not cater to for risk considerations.

The scheme was available till end June 2020 earlier, however, SBP decided to extend the validity of this scheme by another three months to end September, 2020.

Out of the total approved amount, Rs31 billion were for 1449 SMEs and Small Corporates under the RSF as of July 10, 2020 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 under RSF 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 May 15, 2020 to 72 percent and 71 percent on July 10, 2020.

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.

Among the Top Performing Five Banks, for both, JS Bank Limited, Habib Bank Limited (HBL), 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 (RSF) till July 10, 2020.

These top performing five banks provided Rs18.1 billion or 58 percent of the overall approved financing amount eligible for RSF under SBP Rozgar Scheme up till July 10, 2020.

Their share declined from 61 percent earlier on June 12, 2020 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.