Governor State Bank of Pakistan Yaseen Anwar Wednesday chided commercial banks for their “excessively cautious” approach toward SME lending that shrank by 38.67 per cent or Rs169 billion during December 2007 and September 2011. Expressing his dissatisfaction over the decline of SME financing by banks, SBP governor said banks’ advances to the Small and Medium Enterprises (SMEs) had reduced to Rs268 billion in Sep-2011 compared to Rs437 billion in December 2007. “In percentage terms, the share of SMEs financing in the total lending portfolio of banks has also fallen from 16.2 per cent in Dec-2007 to 7.7 per cent by Sep-2011. Clearly, this is not a very desirable situation,” the governor observed. He was presiding over the 4th meeting of SME Credit Advisory Committee here at SBP. Governor SBP stressed upon the banks to develop an effective SME strategy by focusing on important areas for sustainable growth of SME sector. SBP Governor said a thorough analysis of banks’ aggregate SME loan portfolio shows that a major share of total SME advances (76 per cent) constitutes working capital loans, which suggested reluctance on the part of banks to meet the long-term financing needs of SME sector.
“This has significant negative implications for both the drive for modernisation, expansion of businesses and the process of asset formation by SMEs,” he added. Anwar said the overall adverse macro-economic conditions have led to decreasing demand and lower SME lending. “However, I feel that another major factor for this decline is banks’ excessively cautious approach toward SME lending in the face of a difficult business environment.”
“I would suggest that this is not a sustainable situation. Banks need to recognise their own need to diversify and grow their customer base entails greater focus on this potentially lucrative market segment,” SBP Governor added. SBP had revamped its Credit Guarantee Scheme and various refinancing schemes with some encouraging results, Anwar said noting, however, with concern that the overall utilisation of these schemes was still below expected levels, which, he said, needed to be looked into seriously by the participating banks.
“The review of SME Prudential Regulations has been completed after collecting feedback from relevant stakeholders and the revised PRs will be issued soon,” he added.
Anwar observed that a sustainable approach towards the development of SME sector would require a more active role from all stakeholders specially the banks in improving availability of finance and other banking services for SMEs. “This is very important, as SMEs account for the vast majority of the business establishments in Pakistan (over 98 per cent) and account for over 78 per cent of the non-agricultural employment in the country,” he observed. SBP on its part stands ready to support banks wishing to increase lending to this important sector with appropriate policy interventions, he said.
