Amid growing concerns about the potential economic impact of the COVID-19 pandemic, State Bank of Pakistan (SBP) in collaboration with Pakistan Banks Association (PBA) has announced a comprehensive relief package. This package is aimed at facilitating stakeholders including households and businesses (microfinance, SMEs, corporates, commercial, retail, and agriculture) to manage their finances through this temporary phase of disruption.
Key highlights of the package are as follows:
Banks’ overall pool of loanable funds has been increased
To support the banking sector to supply additional loans to businesses and households, SBP has reduced the Capital Conservation Buffer (CCB) from its existing level of 2.50% to 1.50%. This will enable banks to lend an additional amount of around Rs800 billion, an amount equivalent to about 10% of their current outstanding loans. The reduced CCB level will remain applicable till further instructions by SBP.
The regulatory limit on extension of credit to SMEs has been permanently increased
SMEs typically bear the brunt of credit supply contractions during periods of heightened risk aversion and economic downturn. Therefore, as a tool to incentivize banks to provide additional loans to retail SMEs, the existing regulatory retail limit of Rs125 million per SME has been permanently enhanced to Rs180 million with immediate effect. This measure will facilitate banks to provide more loans to SMEs, which currently stand at around Rs470 billion.
Borrowing limits for individuals have been increased for one year
The capacity to borrow from banks for individuals is limited by their capacity to bear the burden of debt, defined in terms of a percentage of their income and known as a Debt Burden Ratio (DBR). SBP has relaxed the DBR for consumer loans from 50 to 60%. This measure will allow about 2.3 million individuals to borrow more from banks in this time of need.
Payment of principal on loan obligations will be deferred by banks
Banks and DFIs will defer the payment of principal on loans and advances by one year. To avail this relaxation, borrowers should submit a written request to the banks before 30th June 2020. They will, however, continue to service the mark-up amount as per agreed terms and conditions. The deferment of principal will not affect borrower’s credit history and such facilities will also not be reported as restructured/rescheduled in the credit bureau’s data. The total amount of principal coming due over the next year is about Rs4,700 billion.
Criteria for restructuring/rescheduling of loans relaxed till 31st March 2021
For borrowers whose financial conditions require relief beyond extension of principal repayment for one year, SBP has relaxed the regulatory criteria for restructuring/rescheduling of loans. The loans that are re-scheduled/restructured within 180 days from the due date of payment will not be treated as defaults. Banks would also not be required to suspend the unrealized mark-up against such loans. In addition, the timeline for classification of “Trade Bills” has been extended from 180 days to 365 days.
Margin call requirements against bank financing have been reduced
Keeping in view the steep decline in share prices, margin call requirement of 30% vis-à-vis banks’ financing against listed shares has been significantly reduced to 10%. Banks have also been allowed to take exposure on borrowers against the shares of their group companies. Banks have currently extended loans in excess of Rs100 billion against listed shares.
SBP and PBA expect that the measures above will help households and businesses in dealing with financial problems arising due to COVID-19. SBP will keep monitoring the economic situation and credit conditions faced by households and businesses closely and standing ready to take additional needed measures in coordination with PBA to steer the economy during this period of temporary disruption.
In these difficult times the banking industry has been providing socially responsible banking services and facilitating their clients in every possible way. Banks regularly inform the public using all available means of communications including advertisements in print and social media for the promotion of digital banking and cash less payments and funds transfers.
Continuous availability of ATMs is also being ensured by keeping them up and running 24/7 by the banks. Banks’ call centers and help-lines are also operating 24/7 and timely resolution of the complaints is being ensured.
Cognizant of the need for issuance of fit, authenticated and disinfected cash by the banks, detailed instructions have been issued to ensure to clean, disinfect, seal and quarantine all cash being collected from hospitals and clinics and to block circulation of such cash in the market. The banks shall report daily collection of cash from hospitals to SBP, which shall credit bank’s accounts for the amounts so quarantined by them. Further, arrangements are being made to provide sufficient fresh or disinfected cash to banks enabling them to issue fresh cash or the re-issuable cash that remained in quarantine for at least fifteen (15) days to their clients. Banks have been ensured that SBP has sufficient quantity of such cash, and it would meet all demands for such cash.
All critical functions and systems required to provide banking services, including Real Time Gross Settlement System (RTGS) remain available as usual even during the lock downs. Large scale closure of branches may cause rush and congestion in the operative branches, which may be counterproductive to efforts to contain the spread of the disease. The banks are allowed to close branches where staff is infected and for which requisite human resource is not available. The situation is being reviewed regularly to take corrective measures.