Circulars/Notifications - Banking Policy Department  
 BPD Circular No. 10
May 17, 2002  

The Chief Executives,

All Banks. 

Dear Sirs / Madam, 

PRUDENTIAL REGULATION-I
LIMIT ON BANK’S EXPOSURE TO A SINGLE PERSON 

 

Please refer to the Prudential Regulations for Banks as amended from time to time.

It has been decided with immediate effect to substitute the existing Prudential Regulation-I with the following: 

REGULATION-I

LIMIT ON BANK’S EXPOSURE TO A SINGLE PERSON 

            The total outstanding financing facilities by a banking company to any single person shall not at any point in time exceed 30% of the bank’s unimpaired capital and reserves (including revaluation reserves on account of fixed assets to the extent of 50% of their value) subject to the condition that the maximum outstanding against fund based financing facilities do not exceed 20% of the unimpaired capital and reserves. In the case of branches of foreign banks operating in Pakistan, the maximum exposure limit of 30% shall be calculated on the basis of their assigned capital maintained under section 13(3) of the Banking Companies Ordinance, 1962 free of all losses and provisions, provided that maximum exposure on the basis of fund-based facilities shall be 20% of the capital maintained under section 13(3) of the Banking Companies Ordinance, 1962 or Rs 12 million whichever is higher. 

2.         No banking company shall: 

(a)    make any loans or advances against the security of its own share; or

 (b)   grant unsecured loans or advances to, or make loans and advances on the guarantee of: 

(i)     any of its directors;

(ii)     any of the family members of any of its directors;

(iii)    any firm or private company in which the banking company or any of the persons referred to in (i) or (ii) is interested as director, proprietor or partner; or

(iv)   any public limited company in which the banking company or any of the persons as aforesaid is substantially interested; and

(v)    its Chief Executive and its shareholders holding 5% or more of the share capital of the bank, including their spouses, parents, and children or to firms and companies in which they are interested as partners, directors or shareholders holding 5% or more of the share capital of that concern. 

(c)    make loans or advances to any of its directors or to individuals, firms or companies in which it or any of its directors is interested as partner, director or guarantor, as the case may be, its Chief Executive and its shareholders holding 5% or more of the share capital of the bank, including their spouses, parents and children or to firms and companies in which they are interested as partners, directors or shareholders holding 5% or more of the share capital of that concern without the approval of the majority of the directors of that banking company excluding the director concerned. 

3.         The term ‘person’ shall include any individual, association or body of individuals, firm, or company whether incorporated or not and any other juridical person. 

4.         In arriving at per party exposure under this regulation: 

A)            90% of the following shall be deducted;

(i)     deposits of the party with bank under lien;

(ii)    face value of Federal Investment Bonds,  Pakistan Investment Bonds, Treasury Bills and National Saving Scheme Securities, lodged by the party as collateral; and

(iii)    Pak. Rupee equivalent of face value of Special US Dollar Bonds converted at official rate, lodged by the borrower as collateral. 

B)     50% of the repayment bank guarantees accepted as collaterals of unconditional nature and payable on demand by banks, rated at least ‘A’ or equivalent by a credit rating agency approved by the State Bank of Pakistan, shall also be deducted. 

C)            Weightage of 50% shall be given to;

(i)     documentary credits opened by banks; and

(ii)     guarantees / bonds other than repayment guarantees. 

5.         For the purposes of paras 1 & 2 above, accommodation shall mean and include: 

(a)    Any form of loans and advances or credit facilities including bills purchased and discounted. 

(b)    Any loans and advances or bills purchased or discounted extended to another person on the guarantee of the person. 

(c)    Subscription to or investment in shares, Participation Term Certificates, Term Finance Certificates or any other commercial paper by whatever name called (at book value) issued or guaranteed by the persons. 

(d)    Any financing obligation undertaken on behalf of the person under a letter of credit including a stand-by letter of credit, or similar instrument. 

(e)    Loan repayment guarantees issued on behalf of the person. 

(f)    Any obligations undertaken on behalf of the person under any other guarantees. 

(g)    Acceptance / endorsements made on account. 

(h)    Any other liability assumed on behalf of the client to advance funds pursuant to a contractual commitment. 

BUT SHALL NOT INCLUDE: 

(i)     Loans and advances given to the Federal or Provincial Governments or any of their agencies under the commodity operations programme of the Government. 

(ii)    Loans and advances (including bills purchased and discounted) given to Federal / Provincial Governments, or guaranteed by the Federal Government. 

(iii)    Pre-shipment / post-shipment credit provided to finance exports of goods covered by letters of credit / firm contracts. 

(iv)   Letters of credit established for the import of plant and machinery. 

(v)    Obligations under letters of credit and letters of guarantee to the extent of the cash margin retained by the bank. 

(vi)   Letters of credit, which do not create any obligation on the part of the bank to make payments on account of imports. 

(vii)  The single person limit does not apply to facilities provided to banks.

6.            Revaluation reserves under para 1 above shall be the reserves created by revaluation of fixed assets of the banking company. The assets must be prudently valued fully taking into account the possibility of price fluctuations and forced sale. Revaluation reserves reflecting the difference between the historical cost, book value and the market value will be eligible up to 50% of their assessed value subject to the condition that the reasonableness of the revalued amount is duly certified by the external auditors of the banking company. 

All other instructions on the subject shall, however, remain unchanged.

            Please acknowledge receipt.


Yours faithfully,
(SD/- Inayat Hussain)
Joint Director

BPD Circulars/ Circular Letters issued in 2003
       
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