KARACHI: The State Bank of Pakistan (SBP) on Wednesday announced another incentive package to help businesses avoid layoffs while directing banks to provide refinancing at zero per cent.

“These additional incentives include relaxations in collateral requirements, further reduction in end-user rate, reimbursement of wages, special accounts for employees to receive wages, borrowing from banks other than maintaining payrolls, simplification of application form for small and medium enterprises and bank’s exposure limits,” said the SBP.

Earlier on April 10, the central bank announced an incentive scheme entitled Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns, enabling provision of concessional credit for payroll finance to businesses that commit to not lay off workers for the next three months.

“These additional incentives are effective as of today,” said the SBP.

The SBP has now allowed banks to provide financing against corporate guarantees of companies in value and supply chain relationship with the borrowers. “Banks have also been encouraged to provide loans without any collateral i.e. taking clean exposure of up to Rs5 million,” it said.

Banks stopped from dividend distribution for two quarters

The SBP also enhanced incentives to active taxpaying businesses by reducing the mark up rate for them to 3pc that was set as 4pc earlier. “Now, the SBP will provide refinance to banks at 0 per cent,” it said while adding that this also increases the gap between the rates charged to active tax paying and the non-tax paying businesses, as the latter can be charged an end user markup rate of up to 5pc.

To facilitate employees for receiving wages under the scheme directly, banks have also been allowed to open accounts on the information and documents provided by employers along with an undertaking stating that these persons are employees or workers.

Banks will ensure verification of employees using the National Database and Registration Authority Verisys before activation of such accounts. These accounts, however, could be used solely for salary disbursement and withdrawal purposes only.

“Businesses have also been given flexibility to avail loan under SBPs refinance scheme for wages from any bank and they will not be limited to avail loans from the bank that manages their payroll,” said the SBP.

Businesses will also be able to get reimbursement of salaries pertaining to the month of April that have been disbursed through own sources, provided they have applied for financing under the scheme before disbursement and the same is subsequently approved by the banks.

The SBP said the SMEs can apply for financing on a simplified loan application form prescribed for this scheme.

“To facilitate the banks further for lending under the scheme, banks’ exposure under the scheme has been exempted from the per-party or the per-group exposure limits,” said the SBP. It said the move will enable banks to lend to borrowers that have exhausted their exposure limits.

All these benefits will also be available to businesses availing financing under the scheme from Islamic banking institutions.

Dividends suspension

Meanwhile, the SBP through a separate circular on Wednesday suspended the distribution of dividends by banks for the two quarters to keep the them more liquid for extending loans.

The central bank said it sees no immediate signs of systemic capital fragility across the banking industry.

“However, banks and DFIs have been advised to suspend the dividend distribution for the next two quarters.”These measures are primarily aimed at ensuring the safety and soundness of banking sector while enhancing their lending capacity to support the economic activities in the country, said the circular.

The banks and DFIs in Pakistan have much higher capital levels than prescribed globally or minimum levels advised by the State Bank.“The banks and DFIs that have approved dividend declaration for quarter ended March 2020 by April 22, have been advised to suspend dividend distribution for June and September quarters 2020,” said the SBP.

All other banks have been advised to suspend dividend distribution for March and June 2020 quarters.

Published in Dawn, April 23rd, 2020