Please
refer to BSD circular No. 8 of 2006 and BSD letter # BSD/BAI-1/220/452/2009
of April 27, 2009, on the subject. It has been decided
that effective from June 30, 2013, the following instructions
would be applicable on banks’/ DFIs’ investment
in units of open-ended as well as closed-ended mutual
funds and Asset Management Companies for the calculation
of Capital Adequacy Ratio (CAR).
A.
Investment in the units of Mutual Funds/ Collective Investment
Schemes:
a)
Investment/ holding up to 30% in a single mutual fund:
Banks’/
DFIs’ investments in the units of mutual funds will
be categorized only in the trading book and the capital
charge will be calculated by any of the following methods:
| Full
look through |
Where
the bank is aware of the actual underlying investments
of the mutual fund on monthly basis, the bank may
calculate the capital charge on its investment as
if the underlying exposure/ asset class held by
the mutual fund is held by the bank itself. |
| Modified
look through |
In
case the bank is not aware of the underlying investment
on a monthly basis, the bank may determine capital
charge by assuming that the mutual fund first invests
to the maximum extent in the most risky asset class
(i.e. which attracts highest risk weight under existing
instructions) allowed under its offering document
and then continues making investments in descending
order (second highest risk weighted asset) until the
total investment limit is reached. Refer to appended
Annexure-A for more details. |
| Conservative
Approach |
If
the bank is not in position to implement above approaches,
the bank may calculate capital charge based on the
most risky asset (i.e. assigning the highest risk
weight) category applicable to any asset the mutual
fund is authorized to hold as per its offering document.
For further clarity, refer to Annexure-A. |
b) Investment/ holding
in a single fund within the range from 30% to 50%:
The
investment/ holding up to 30% of a mutual fund would attract
capital charge based on look through approaches prescribed
above and the incremental investment (beyond 30% benchmark)
would attract a flat capital charge of 20%.
c)
Investment/ holding in a single fund exceeding 50% or
investment subject to lock-in clause:
In
case banks’/ DFIs’ holding in a single mutual
fund exceeds 50%; then the investment/ holding up to 30%
of a mutual fund would attract capital charge based on
look through approaches whereas the incremental amount
exceeding 30% threshold would be deducted from Tier-1
capital of the bank. Furthermore, where the banks’
investment is subject to any lock-in clause (irrespective
of its percentage holding) under which the bank cannot
liquidate its position (e.g. seed capital), the entire
investment would be deducted from Tier-1 for capital adequacy
purposes.
B.
Significant Investment in the capital of Asset Management
Company (AMC)
Asset
Management Company (AMC) is considered as a financial
entity for capital adequacy purposes and any significant
minority and/or majority investments in the capital of
AMC is subject to the same rules as described in the Scope
of Application (paragraph 1.1) of SBP Basel II instructions.
Please
acknowledge receipt.
Encl:
Annexure-A