SBP rolls out relief package for businesses, households

KARACHI: The State Bank of Pakistan (SBP) in collaboration with Pakistan Banks Association (PBA) announced a relief package on Thursday amid growing concerns about the potential economic impact of the COVID-19 pandemic.

The package is aimed at helping relevant stakeholders, including households and businesses (microfinance, SMEs, corporates, commercial, retail, and agriculture), to manage their finances through this temporary phase of disruption, according to a statement.

Under the package, 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 per cent to 1.50 per cent.

“This will enable banks to lend an additional amount of around Rs. 800 billion, an amount equivalent to about 10 per cent of their current outstanding loans.  The reduced CCB level will remain applicable till further instructions by SBP,” the statement read.

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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 Rs 125 million per SME has been permanently enhanced to Rs 180 million with immediate effect.

“This measure will facilitate banks to provide more loans to SMEs, which currently stand at around Rs. 470 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).”

The SBP also relaxed the DBR for consumer loans from 50 per cent to 60 per cent.

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“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.”

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.

Regulatory criteria for restructuring/rescheduling of loans have been temporarily relaxed till 31st March 2021.