PACRA Maintains Entity Ratings of SME Leasing Limited
SME Leasing Limited is a non-deposit taking small leasing company. The company is majorly owned by SME Bank Limited (long-term rating “B-” with developing outlook by PACRA). The ratings of SME Leasing are mainly driven by its stand-alone risk profile due to distressed position of parent bank. 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 while following a cautious approach has managed to build asset quality book; 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.
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.