It may be noted that Principle 5 of Core Principles of
Banking Supervision requires that "The banking supervisors
must have the authority to establish criteria for reviewing
major acquisitions or investments by banks and ensuring
that corporate affiliations or structures do not expose
the banks to undue risks or hinder effective supervision.”
Further, Essential Criteria for Core Principles Methodology
(used to assess compliance with core principles) states
that “Laws or regulations should clearly define
for which cases notification after the acquisition or
investment is sufficient. Such cases should primarily
refer to activities closely related to banking and the
investment being small relative to the bank's capital."
This transpires that all significant investments by banks
should be notified to the regulators on pre-facto basis.
2.
In view of the above, it has been decided that the banks/DFIs
will obtain prior approval in writing from the State Bank
while purchasing shares of a company in excess of 5% of
their paid-up capital or 10% of the capital of investee
company, whichever is lower. These limits will be calculated
as under:
3.
In this respect, the bank’s/DFI's request will be
considered in the light of the nature of relationship
of the investing bank and the investee company. Further,
other factors, such as financial standing of the investing
bank, its aggregate investment portfolio, experience in
managing the same, efficacy of internal controls etc.
will also be taken into account.
4.
In case, shares in excess of above limit are acquired
by the bank/DFI through settlement of a facility or by
any other means, the information to this effect will be
conveyed to the State Bank of Pakistan within three days
of the acquisition of such shares. Furthermore, the shares
so acquired should be disposed off within one year to
comply with the limits given under para 2 above
5.
The above instructions will not have, however, a retrospective
effect.
6.
Please acknowledge receipt.