PACRA Revises Entity Ratings of SME Leasing Limited

Lahore, May 16, 2019 (PPI-OT): SME Leasing Limited is a non-deposit taking small leasing company. The company is majorly owned by SME Bank Limited (of which the ratings have lately been suspended 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 has been trying to boost the profitability to bring sustainability to SME Leasing. The constraint is on the funding side and also the cost of funding. Lately, the CEO retired from the position and CFO has left and these positions need refilling.

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 company expects 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 company’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 a positive implication on the ratings. However, any material deterioration in existing risk profile of the company would negatively impact the ratings.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com

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