2. It has been observed
that some banks are using longer tenor benchmark rates
for shorter tenor loans. The most common practice, noticed
by the State Bank, is to re-price a 3-month loan by
using benchmark of 6-month KIBOR. This practice is not
correct. It is, therefore, clarified that:
(a) For fixed rate time
loans, the tenor of the benchmark rate should be the
same as the tenor of the fixed loan, e.g. if a loan
is fixed-rate for 2 or 3 years, then KIBOR tenor of
2 or 3 years should be used. For tenors exceeding 3
years and not covered by KIBOR, banks are advised to
use appropriate benchmarks such as secondary market
yields on the relevant tenor of Pakistan Investment
Bonds.
(b) For floating rate
time loans, the tenor of the benchmark rate should be
the same as of re-pricing tenor set for the floating
rate loan, e.g. if a loan is re-priced every six month,
then 6 month is the relevant benchmark, whether the
loan is of 1, 2 years or any other term.
3. The banks/DFIs are
advised to use the above method in benchmarking their
corporate loans meticulously, as any practice other
than this will be against the letter and spirit of the
subject circular.
4. All other instructions
on the subject will, however, remain unchanged.