LAHORE: The oil marketing companies (OMCs) may default as a result of new lending policies of the banks.
These concerns were expressed by the OMCs in a letter written by them to the president of a leading bank.
The letter reads: “subsequent to Hascol default, we have observed with a great concern that attitude of banks and particularly that of the lead bank in financing Hascol has totally changed with a paradigm shift in its lending policy.
Companies with an excellent track record, low leverage and high profitability are being discouraged and being shown exit and being asked to search other funding avenues.”
The OMCs contend that banks should reconsider their recent policy regarding credit lines for Oil Marketing Companies (OMCs). The association showed serious concerns over recent changes in their lending policy.
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The letter also states that some of the companies have been asked to reduce their credit lines immediately by banks. One of the reasons for exit to good OMCs is stated to be the low margin of the sector.
This kind of attitude towards the OMC sector might disrupt the whole economy as this sector cannot operate without the support of the banking sector.
Seeing this type of unreasonable treatment by a leading bank, other banks are also taking this line and asking their customers for an immediate reduction of their credit lines.
It has also been observed that the attitude of bank’s field functionaries has also changed and has become insulting towards the management and sponsors of the OMCs.
This situation has created a panic in the market and any further pressure might lead to defaults of other OMCs with banks.
The OMC sector is regulated by the government and currently, there are 30 registered OMCs in Pakistan, out of which 13 are properly functional. The Ogra regulates and controls this sector through various measures and even the net margin of the sector is fixed and advised by this watchdog. This is a high volume, high turnover and low margin business.
According to the letter, the industry is playing a pivotal role in the economic development of the country by providing this very basic commodity. The industry is contributing around Rs 1,000 billion annually in the form of taxes and levies to the national exchequer.
The OMC sector is providing employment to more than 250,000 workforces helping road transport and providing services to the nation through its CSR plans. As per Ogra policies, these OMCs are allowed to procure oil products both from local refineries (as per allocated quota) and the international market.
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This kind of high-volume business cannot operate without the proper support of the banking channels. As per requirements, each OMC has got approved credit lines from different banks which are being operated and utilized satisfactorily.
However, during the current year, one of the leading OMCs named Hascol defaulted with all the banks and as per market information, the total default amount exceeds Rs 58 billion.
This is one of the biggest defaults in the banking history of Pakistan and naturally every bank is now cautious and careful towards the whole industry.
Moreover, some of the companies have been asked to reduce their credit lines immediately. One of the reasons for exit to good OMCs is stated to be the low margin of the sector. This kind of attitude towards the OMC sector might disrupt the whole economy as this sector cannot operate without the support of the banking sector. Seeing this type of unreasonable treatment by the leading bank, other private banks are also taking this line and asking their customers for an immediate reduction of their credit lines. It has also been observed that the attitude of your field functionaries has also changed and has become insulting towards the management and sponsors of the OMCs.
This situation has created a panic in the market and any further pressure might lead to defaults of other OMCs with banks.
“We do understand that banks are the custodian of the public money and need to invest very carefully. However, we request you to please review your lending policy towards this important sector, and being a nation’s bank, support to your maximum capacity particularly towards good quality, credible and committed sponsors,” the letter concludes.
Copyright Business Recorder, 2021
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