Please refer to BPRD Circular No. 36 dated the 4th November 1997 (hereinafter referred to as the said circular) on the above subject.

2 In the light of queries received from various banks the following amendments/clarifications in the said circular are issued:

i) In terms of Para 5 of the said circular each margin and Government securities held are eligible for deduction from certain items before applying risk weights/credit conversion factors. A question has arisen whether the deposits held as collateral are also eligible fro deduction. In this connection, it is clarified that the deposits of the party held under lien with flawless documentation shall also be eligible for deduction from exposure to such party, on the lines of each margins, before applying risk weights/credit conversion factors. The amounts of each margins, deposits and government securities so deducted shall be shown by way of foot-notes under parts ‘B’ and ‘C’ of the prescribed return to be submitted to the State Bank of half-yearly basis.

ii) In terms of the existing instructions the outstanding foreign exchange contracts are assigned a credit conversion factor of 3% and a uniform risk weight of 100% . The matter has been reviewed and it has been decided that foreign exchange contracts with SBP may be subjected to “Zero” risk weight and those with banks to 20% risk weights. All outstanding sale and purchase contracts will, however, be taken into account and no netting off will be done. The outstanding foreign exchange contracts with SBP and banks will be shown separately against item 6, Part C, of the prescribed return. Therefore, the format of the return may be amended accordingly.

iii) “G-10 Countries” as referred to in the said circular include the following countries:

1. U.S.A 2. United Kingdom 3. Japan 4. France

5. France 6. Canada 7. Italy 8. Netherlands.

9. Belgium 10. Sweden

iv) The banks shall keep their expansion plans within such limits as can be accommodated by the size of their capital. For this purpose, banks shall constantly monitor the adequacy of their capital so that at in point of time that capital actually maintained by the falls short of the minimum requirement as laid down the said circular.

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