Circulars/Notifications - Banking Policy & Regulations Department  
 BPRD Circular Letter No. 25 of 2014
July 23, 2014

The Presidents/Chief Executive Officers
All Banks/DFIs

Dear Sir / Madam,

Risk weight for Unrated Large Corporate – Implementation of Basel Capital Framework

Please refer to BSD Circular No. 8 of 2006 which, inter alia, requires banks/ DFIs to assign risk weights to their on- and off-balance sheet exposures based on risk assessment made by the recognized external credit assessment institutions (ECAIs) for capital adequacy purposes.

It is advised that large private sector borrowers should be encouraged to get themselves rated since default of such entities may pose systemic risk. The independent opinion on the credit quality would provide better insight into the financial health of such borrowers, support bank’s internal credit risk assessment, may result in capital savings and lead to rationalized cost of borrowing for these entities.

In view of above, it has been decided that effective from December 31, 2014, all unrated private sector borrowers with aggregate outstanding exposure from financial institutions (both fund-based and non-fund based) of Rs. 3 billion or above, net of liquid assets, will be subject to a risk weight of 125%. Consequently, a new risk weight category of unrated-2 specifying 125 percent risk weight is added in serial No. k of table 2.2 of the BSD Circular No. 8 of 2006 as following:

Table 2.2
S. No.
Exposure Type
External rating
Risk Weight
k.

Claim on Corporate (excluding equity exposures)

1
2
3, 4
5, 6
Unrated-1
Unrated-2

20%
50%
100%
150%
100%
125%


All other instructions on the subject shall remain unchanged.

Please acknowledge receipt.



Yours faithfully,


( Shaukat Zaman )
Director

       
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