The Presidents/Chief Executives
All Banks/ DFIs

Dear Sirs/Madam,

REVALUATION SURPLUS / DEFICIT

Please refer to BSD Circular No. 10 dated 13 th July, 2004 on the above subject. Some banks have approached the State Bank seeking clarifications relating to the implementation of the above-referred Circular. All such queries have been reviewed and it is clarified that:

i) BSD Circular No. 10 shall be effective from the date of its issuance i.e 13 th July 2004. Prior to the date of issuance of this circular, the instructions contained in BSD Circular No. 20 dated 4 th August, 2000 shall be followed.

ii) The banks shall classify their investments into three categories i.e. Held for Trading, Available for Sale and Held to Maturity. However, investments in subsidiaries and associates shall be reported separately in accordance with International Accounting Standards as applicable in Pakistan and shall not be subject to mark to market.

iii) First time classification of securities into Held for Trading, Available for Sale or Held to Maturity will be as of the effective date of the above referred Circular, and any unrealized mark to market surplus/deficit existing in the books in respect of Held for Trading
Securities only will be taken to Profit and Loss Account.

iv) Banks can use investments held in any of the three categories as a collateral under Repo/Reverse repo transaction, however, in these transactions the securities are subject to a repurchase / resale commitment, and therefore the risk of loss due to change in price will remain with the owner. Consequently, a security which is the subject of a repurchase or security lending agreement will be treated as if it were still owned by the lender and will be marked to market by the lending bank (owner) and any surplus /deficit shall be treated according to its category of classification.