OMC’s Warn of Further Defaults Over Strict Lending Policies by Banks

Oil marketing companies (OMCs) have warned of further defaults as a result of the stricter lending policies adopted by banks in the aftermath of the Hascol fiasco.

In a letter to the president of a leading bank, OMCs have expressed resentment towards the “paradigm shift” in lending policies and attitude adopted by the banks, and particularly that of the lead bank in financing Hascol.

The letter laments that even companies with an excellent track record, low leverage, and high profitability are being shown the door and asked to search other funding avenues.

The letter states that some of the companies have been asked to reduce their credit lines immediately and have asked the banks to reconsider their recent policy regarding credit lines.

Citing the low margin of the sector as a reason for good OMCs exit, the letter warns that the attitude towards the sector might disrupt the whole economy as the sector cannot operate without the support of banks.

Criticizing the “unreasonable” treatment of the leading bank, the letter says that other banks are also taking this line and asking their customers for an immediate reduction of their credit lines.

The letter further adds that the situation has created a panic in the market, and any further pressure might lead to defaults of other OMCs with banks.

The OMC sector is regulated by the government, and currently, there are 30 registered OMCs in Pakistan, out of which 13 are properly functional. Oil and Gas Regulatory Authority (OGRA) regulates and controls this sector through various measures, and even the net margin of the sector is fixed and advised by this watchdog.

According to the letter, the industry is contributing around Rs 1,000 billion annually in the form of taxes and levies to the national exchequer and employs over 250,000 people. As per OGRA policies, the OMCs are allowed to procure oil products both from local refineries and the international market.

“We do understand that banks are the custodian of the public money and need to invest very carefully. However, we request you to please review your lending policy towards this important sector, and being a nation’s bank, support to your maximum capacity particularly towards good quality, credible and committed sponsors,” the letter concludes.