13 June | 2024

Lahore, Pakistan

Govt orders protection of consumers’ deposits, as SME Bank closed

Specialized moneylender was established to support small firms by giving them financial assistance, business support services in form of short- to long-term funds

LAHORE/ISLAMABAD: The federal cabinet, on the recommendation of the State Bank of Pakistan, approved the closure of the SME Bank Limited, a moneylender focused on small and medium-sized businesses.

Chairing the cabinet meeting, Prime Minister Shehbaz Sharif instructed that the protection of the customers’ deposits should be ensured during the winding down process. In the first phase, all of the bank customers would be paid Rs5.557 billion.

It is pertinent to mention here that deposits in banks are guaranteed up to Rs250,000 per depositor, according to the Deposit Protection Corporation. The International Monetary Fund (IMF) advises recapitalizing financially troubled banks or facing liquidation.

Officials said that the government has no other option but to announce closure respectfully after several attempts to raise capital failed. The SME Bank Limited was established to support small firms by giving them financial assistance and business support services in the form of short- to long-term funds.

Union of Small and Medium Enterprises asks government inject funds in SME Bank and return all its land, its capital

With the government as the major shareholder, the SME Bank was formed and incorporated as a public limited company under the Companies Ordinance 1984. As part of financial sector restructuring program, Regional Development Finance Corporation and Small Business Finance Corporation were amalgamated into the SME Bank in 2002.

The officials said that the bank was removed from the government’s list of privatization since no bank or investor showed interest to buy it due to its unsatisfactory financial situation. Record showed that the SME Bank was losing over one billion rupees annually, and the government decided that keeping the specialized bank on ‘life support’ was not suitable decision.

The State Bank had formally informed the government that the SME Bank cannot be rehabilitated and should be resolved. Since 2007, the bank was operating with a paid-up capital of Rs2.39 billion. According to the SME Bank annual report for 2021, banks must raise paid-up capital to meet minimum capital requirements of Rs10 billion in accordance with the standards.

Union of Small and Medium Enterprises President Zulfikar Thaver said that the SME Bank should not be merged with the National Bank but it should be injected with funds and also the government must return all its assets – its land, its capital – and allowed to function. He said that it should also be allowed to raise its own capital by offering shares to the public.

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