Islamabad: The Securities and Exchange Commission of Pakistan (SECP) has issued a show cause notice to SME Leasing Limited, a subsidiary of SME Bank Limited, for failing to comply with crucial regulatory requirements. The proceedings address the company’s inability to maintain the Minimum Equity Requirement (MER) stipulated under the Non-Banking Finance Companies and Notified Entities Regulations, 2008.
The show cause notice, numbered SECP/SCD/ADJ-I/30/2022-056 and issued on January 12, 2024, has prompted several hearings, with the latest on September 16, 2024. According to information available from the Pakistan Stock Exchange (PSX), SME Leasing Limited is listed on the exchange and is primarily engaged in leasing operations as a Non-Banking Finance Company (NBFC).
The SECP’s order highlights SME Leasing Limited’s persistent non-compliance with regulation 4 of the NBFC Regulations. Despite being advised to rectify its MER deficit, the company failed to present a substantive business plan or equity injection commitments. As a result, its license renewal application has been on hold since April 2022, with the company’s MER standing at a deficit of Rs. 33 million against the required Rs. 50 million.
Compounding the situation, the Federal Government, in a meeting held on March 17, 2023, approved the winding down of SME Bank Limited, the parent company of SME Leasing Limited. The State Bank of Pakistan subsequently declared SME Bank as a failed institution on March 27, 2023, prohibiting it from accepting further deposits.
SME Leasing Limited, faced with these challenges, has struggled to secure the necessary capital injection. The company considered various strategies, including amalgamation with its parent bank and share transfers, but these efforts have yet to yield results. The company’s financial position has further deteriorated, with negative equity preventing a buy-back of shares from the market.
Despite these setbacks, SME Leasing Limited has made efforts to recover from non-performing leases, recovering Rs. 140 million from old lease accounts over the past four years. However, the company’s prospects remain uncertain, and the Federal Government’s decision to process the company’s liquidation alongside its parent bank’s liquidation has left its future in limbo.
The SECP’s proceedings against SME Leasing Limited underscore the regulatory body’s commitment to enforcing compliance within the NBFC sector. As the company navigates these challenging times, the implications for stakeholders, including employees and shareholders, remain closely watched.