The Pakistan Credit Rating Agency Limited
Press Release


Ayesha Qasim

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PACRA Maintains Entity Ratings of SME Leasing Limited

Rating Type Entity
(29-Nov-18 )
(12-Jun-18 )
Action Maintain Maintain
Long Term B+ B+
Short Term B B
Outlook Negative Stable
Rating Watch Yes -

SME Leasing Limited is a non-deposit taking small leasing company. The company is majorly owned by SME Bank Limited (long-term rating “CCC” with negative outlook by PACRA). SME Leasing maintains a weak business and financial profile given higher quantum of non-performing portfolio, deteriorating equity base due to business losses, inadequate funding profile, and low liquidity. The management is currently focused to make recoveries from delinquent portfolio. In the recent period since 2015, the company is following a cautious approach; thus gradual reduction in losses is targeted. Although contained, higher operational expenses remained a drag and resultant losses caused equity erosion. Low funding base, currently limited to a financing facility provided by the parent bank – SME Bank, is a key constraint in improvement in business profile. However, the management is in discussions with relevant stakeholders to explore options to increase the funding base and/or lower its finance cost by conversion of existing facility to preference shares. Upon availability of required funding, the management expects fast-track turnaround in performance, enabling the company to generate profits, with a build up of good quality asset book. However, materialization of these efforts is yet to be seen.
The management’s efforts to curtail the operational losses are important to continue. Meanwhile, improvement in asset quality is crucial. Fresh injection of funds would be required to strengthen the company’s business profile; this would also have positive implication on the ratings. However, any material deterioration in existing risk profile of the company would negatively impact the ratings.

About the Entity
SME Leasing Limited, a non-deposit taking leasing company in Pakistan, commenced Operations in 2002. SMEL's major shareholder (~73%), is SME Bank Limited. SMEL has obtained license of non deposit taking NBFC from SECP. SME Bank is in the process of being privatized.

The Board of Directors (BoD) comprises seven members, including the Chief Executive Officer. Three directors have been nominated by SME Bank.The company has a small and lean organizational structure.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.