KARACHI: JCR-VIS Credit Rating Company Limited has revised the entity ratings of SME Leasing Limited (SLJ) [rom 'BB-/B' (Double B Minus/Single B) to 'B/B' (Single B /Single B). Outlook on the assigned ratings is `Negative'.
The previous rating action was announced on July 9, 2015, says a press release on Friday.
SME Leasing Limited (SLL) is sponsored by SME Bank Limited (SMEBL), which in turn is primarily owned by the Government of Pakistan. Assigned ratings incorporate weakening in risk profile or SMEBL due to continuous erosion of equity base which has led to substantial downgrade of the parent's credit rating in 2016.
Net equity of SLL has continued its downward trend on account of year-on-year losses being reported by the company with some respite in 1Q16. However, losses have been controlled in the ongoing year. As per the revised NBFC Regulations 2008, minimum equity requirement for non-deposit taking leasing companies has been set at Rs. 50m SLJ is in compliance with regulatory capital requirement for non-deposit taking leasing companies. Nevertheless, capitalization indicators remain weak and limit the institution's risk absorption capacity. In order to fund its operations, SLJ solely utilizes running finance (RF) facility provided by SMEBL which is the limiting factor towards growth of the company.
Liquidity profile of SLL has come under significant stress over time on account of lack of access to market sources of funding. Lending activity demonstrated decline in CY15 with management focusing on consodilation of existing portfolio.
Improvement in recoveries has led to profit after tax of Rs. O.6m 1Q16. Going Forward, disbursement is expected to continue with focus on recoveries. Asset quality indicators remain stressed with majority of portfolio being classified in the absence of fresh equity, net NPLs as a proportion of Tier 1 Equity are sizeable.
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