Credit where credit due. One trick pony finally comes up with a policy worth talking about. I didn’t think he had it in him.

SBP refinance facility to allow the companies to keep their employees on the payroll and not fire them.

Not perfect but getting there

The facility allows companies to approach their banks and borrow at 5% (4% if they are on active tax payer’s list) for their 3 month wage bill (3wb) up to
1. 100% if 3wb < Rs200mil
2. 50% if 3wb > Rs.500mil
3. 75% if between above figures

6 month grace period on interest payment and principal payable over 2 years. Banks to justify to SBP why they are denying any such request.

What SBP fails to realize that it’s just not a liquidity constraint that is forcing companies to lay-off employees.

Taking example of textile company. The facility helps in the problem if the revenue receipts are delayed. But if the export order is cancelled, the company is not only looking at partial or full write off of the orders already manufactured but keeping employees on payroll

when no work is there. Think of it. Factory is shut down and company is incurring an expense of Rs.500 million to keep the employees on payroll. There is no revenue for this period. The company may go into huge losses or bankruptcy paying these expenses

What SBP facility is doing is allowing the company to borrow that amount at 4%. The textile company will have to make an additional income over and above of their usual income in 2 years to be able to payback the loan.

I don’t know how the world will be after 3 months in terms of orders. I don’t know what the margins will be on those orders. SBP wants me to take a loan of Rs500 million to keep the employees on payroll. What if things don’t improve in 3 months.

Not only I have the losses that I had incurred to date on canceled orders but an additional loan of Rs.500 million to pay back. Liquidity solution compounded my solvency problem.

I understand SBP doesn’t deal with borrowers directly but this is unnecessary responsibility on banks (and I have no soft spot for banks). As SBP is just refinancing, any of the losses on this facility will be on the bank’s books.

How is the bank supposed to assess the solvency of the company in the middles the year (SMEs don’t even have financial statements worth analyzing? Usually prepared by Charterer Accountants to “fill the stomach of the file”).

For export industries, it is easier as their export shipments and receipts go through the banks. For all other SME businesses, banks do not have the visibility on the cash flow and they are lent against collateral.

Once again, SBP thinks asking banks to lend to riskier businesses and companies to overburden themselves with more debt for loss making segment is a smart thing to do.

I can be wrong but I don’t think many companies will borrow nor banks will lend.

This is hospital financing facility where you can replace hospitals with a company and isolation ward with payroll expenses. Bhai ki long thread on hospital facility https://twitter.com/2paisay/status/1247400101842206723

Another long thread I use the hospital facility to take pot shots https://twitter.com/2paisay/status/1248107356531154950

Once again SBP goes into self congratulation mode even mentioning the useless hospital financing facility

As I said, one trick pony needs to do an internship on the credit desk of a commercial bank or at least job shadow a risk officer or even talk to a few businesses.

I don’t know which stakeholders they are talking to. IIW??