The
Presidents/Country Heads
All Scheduled Banks & DFIs.
Dear
Sir,
BENCHMARKING CORPORATE LENDING
PRODUCTS TO KIBOR
With
a view to encourage transparency, promote consistency in
market based pricing and improve management of the market
risks undertaken by the banks, it has been decided that
after 31-01-2004, the Karachi Interbank Offered Rate (KIBOR)
of one, three & six-month tenor, and other longer tenors
as made available, shall be used as a benchmark rate for
determining pricing of all Rupee Corporate/Commercial banking
lending, of banks & DFIs in terms of the Prudential
Regulations for Corporate and Commercial Banking. In this
regard, following instructions are issued for strict adherence
by the banks:-
1. The benchmarking will be applicable to:
• All Floating and Fixed Rate Time Loans / TFCs /
Commercial Papers with reset dates (where applicable) within
the available KIBOR tenors upto 6 months which is to be
increased to 12 months by March 31, 2004 and thereafter
to 3 years by December 31, 2004.
• Overdraft and Running Finance obtained / renewed
after 31 January 2004.
2. Following methodology will be used for using KIBOR as
the benchmark rate:
• KIBOR is defined as the Average rate, Ask Side,
for the relevant tenor, as published on Reuters page KIBOR
or as published by the Financial Markets Association of
Pakistan in case the Reuters page is unavailable.
• Banks and the borrowers are free to decide on the
relevant tenor of KIBOR and the spread over KIBOR at their
discretion.
• KIBOR will be set for the lending facility on the
date of draw-down or on the markup-reset date.
• Offer Letter to the client should clearly indicate
the KIBOR’s tenor plus agreed spread, frequency of
revision etc.
3.
Following Exemptions will be available from the requirement
of using KIBOR as benchmark rate:
• Financing under Export Finance Scheme of the State
Bank of Pakistan, rates of which shall continue to be determined
as per instructions issued by the Banking Policy Department
of State Bank of Pakistan.
• Lending provided by the banks in terms of the Prudential
Regulations relating to Consumer financing and SME Financing.
• The Overdraft and Running Finance facilities extended
upto 31 January 2004. (These shall, however, be benchmarked
to KIBOR at the time of renewal of the facility or when
the same is due for repricing.)
• All TFCs / CPs approved by SECP and / or submitted
to any stock exchange, provided the requests for necessary
approval are submitted upto January 31, 2004.
• All time loans with agreements executed upto January
31, 2004. However, if the pricing is renegotiated, these
loans will be benchmarked to KIBOR.
The
banks are advised to comply with the said instructions and
procedure of benchmarking to KIBOR.
All concerned are encouraged to report the instances where
the lending facilities are not extended by the banks in
the light of foregoing instructions for appropriate regulatory
actions by the State Bank.