The State Bank of Pakistan (SBP) on Wednesday allowed banks to suspend quarterly dividends to conserve capital and enhance their lending and loss absorption capacity.

SBP advised banks, development finance institutions and microfinance banks to suspend distribution of profits by way of declaring dividends in any manner (cash or stock) for the quarter ending March 31, 2020 and half year ending June 30, 2020.

“These instructions will not be applicable on dividend declared for the year ended December 2019,” it said in a statement. “If board of directors considers it necessary to declare the dividend in wake of the institution’s specific circumstances, it may approach SBP with sound justifications for consideration of the request on merit.”

State Bank advised banks to provide financing to small and medium enterprises (SMEs) without collateral. The central bank introduced further incentives under refinance scheme for payment of wages and salaries to the workers and employees of business concerns.


“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 SMEs and bank’s exposure limits. These additional incentives are effective as of today,” it said in a separate statement.

Earlier this month, the central bank announced an incentive scheme to enable the provision of concessional credit for payroll finance to businesses that commit to not lay off workers for the next three months.

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

The decision was taken on feedbacks from stakeholders, SMEs including vendors and distributors that were particularly facing the problem of providing security/collateral.

SBP enhanced the incentive to businesses, which are active tax payers by reducing the mark up rate for them to 3 percent that was set as 4 percent earlier. Now, the SBP would provide refinance to banks at zero percent. This also increases the gap between the rates charged to active tax payer and the non-tax payers businesses, as the latter can be charged an end user markup rate of up to 5 percent.

“To facilitate employees for receiving wages under the scheme directly, banks have been allowed to open their accounts on the information and documents provided by the employers along with an undertaking stating that these persons are bonafide employees/workers,” the central bank said. “Banks will ensure verification of the employees using NADRA 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 SBP’s refinance scheme for wages from any bank and they would not be limited to avail loans from the bank that manages their payroll.

“Further, businesses will also be able to get reimbursement of salaries pertaining to the month of April 2020 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,” SBP said. “SMEs can apply for the financing on a simplified loan application form prescribed by SBP for this scheme.”

Banks’ exposure under the scheme has been exempted from the per-party or the per-group exposure limits.

“It will enable them to lend to borrowers that have exhausted their exposure limits,” it added. “All these benefits will also be available to businesses availing financing under the scheme from Islamic banking institutions.”

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