The Pakistan Credit Rating Agency Limited
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Faraan Taimoor

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PACRA Revises Entity Ratings of SME Leasing Limited

Rating Type Entity
Action Downgrade Maintain
Long Term B- B
Short Term A4 B
Outlook Negative Negative
Rating Watch Yes Yes

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. After the unfortunate demise of Mr. Abdul Waseem in May 2020, Mr. Asghar Maqsood has been diligently working as the acting CEO since July 2020. 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. SME Bank itself is since long in the process of privatization. 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 an existing facility to preference shares. 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 are 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. SME Bank is on the list of privatization commission.

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

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