PACRA Maintains Entity Ratings of SME Leasing Limited | Rating Watch

SME Leasing Limited is a non-deposit taking leasing Company and is majorly owned by SME Bank Limited. SME Leasing maintains a weak business and financial profile given the higher quantum of a non-performing portfolio, continuously depleting equity base, now almost eroded, due to business losses, inadequate funding profile and low liquidity. The equity has gone below the Minimum Capital Requirement. The management has been trying to boost the profitability to bring sustainability to SME Leasing but funding constraint remained a major obstacle in converting the Company into a profit-making institute. Mr. Asghar Maqsood has been working as acting CEO from July 2020 to Dec 2021 and as the full time CEO since January 2022. During CY21, the Company recovered PKR 83mln of which PKR 51mln pertained to chronic NPLs and also disbursed new loans of PKR 18mln from the recoveries. 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 through fresh equity injection. Upon availability of required funding, the company expects a turnaround in performance, enabling the company to generate profits, with a build-up of good quality asset book. However, a materialization of these efforts is yet to be seen. Further, enhancement in equity levels is drastically required.
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.

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