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.
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