Overview

SME Bank limited, as its name implies, provides financial support, products and services to SMEs (small and medium-sized enterprises) in Pakistan. It was established in 1984. Its head office is in Islamabad, the capital of Pakistan. The recovery offices are situated at big cities like Rawalpindi, Lahore, Multan, Karachi, and Peshawar, with several small branches in Lahore, Karachi, Faisalabad, Peshawar, Gujranwala, Quetta, Sialkot, and Rawalpindi.

SME Bank offers financial solutions to SME owners by providing them with lending products as well as the banking products. Lending products include asset finance, running finance, leasing, and loans at tentative rates. Whereas the banking products comprise of conventional banking products, e.g. saving accounts, basic banking accounts, and current accounts etc. The bank not only offers financing facilities for the SMEs, but also for the projects. Moreover, it provides working capital and other business support services to the clients. SME Bank Ltd has also started its online banking services to fulfill the demand of its internet savvy customers.

Privatization of SME Bank Ltd, Pakistan

Government of Pakistan has decided to go for the initial public offering (IPO) of 93.88% shares of SME Bank Ltd. In June, 2007 Government appointed BMA Capital (the leading investment group behind more than 50% privatization transactions carried out in the country) as Financial Advisor to the Privatization Commission of Pakistan for this purpose. Privatization Commission signed a Financial Advisory Services agreement with BMA capital. PC Board has recently approved the structure of the privatization transaction proposed by the BMA Capital. Expression of Interest (EOI) and Request for Statement of Qualification (RSOQ) from the potential buyers will be processed soon by the Transaction Committee.

 
Transaction Structure

 Government will offer 93.88 % shares of SME Bank to the public. The management will retain the control on the business, on the basis of ‘as is where is’.

Schedule

Initial Public Offering (IPO) of the shares of SME Bank Limited is scheduled to be held in the second quarter of the FY 2008.

Analysis of the SME Sector and Investment in SME Bank Ltd

SME Bank Limited offers specialized banking services to the SME owners. The future of this bank seems to be very promising due to the fact that it caters the needs of one of the most significant sectors of the economy. SME sector contributes about 33% of total GDP of Pakistan. According to the Director SME department of the State Bank of Pakistan, there are 184,798 SME borrowers owing Rs409.86 billion to the banks as of September 30, 2007. Estimated number of prospective customers is even healthier than that, so the millions of current and potential customers in this sector make it even more attractive to the Pakistani banks. The plus point of SME Bank Limited is that the big players of the banking sector of the country have SME departments, where as SME Bank Limited is the only bank serving this sector’s needs exclusively. There are 3.2 million enterprises operating in Pakistan, and 99% these enterprises lie in the category of Small and Medium-sized Enterprise (SME). So it can be inferred that there is still a huge scope for all the banks and especially for the SME Bank Limited, given the enormous size of this market.

In my opinion, it would be a wise decision to invest in SME Bank Limited due to two important facts. First, it possesses huge potential to make big profits by expanding its horizons in the SME sector after gaining finances through the IPO. Second, Pakistan banking sector has always been the investors’ first choice to put their stake in, as it is the most profitable sector at the Karachi Stock Exchange. So I have my fingers crossed for the forthcoming IPO of SME Bank Limited’s shares.