The Presidents/ Chief Executives

All Banks/DFIs

Dear Sirs/Madam,

Guidelines on Country Risk

Please refer to BSD Circular No. 7 dated August 15, 2003 notifying the guidelines on four major risk categories i.e. Credit, Market, Liquidity and Operational risk.

Rapidly changing conditions in the various countries of the world have emphasized the importance of Country Risk Management. Even though our banks have relatively low level of cross border exposures, the importance of country risk management cannot be ignored. Consequently, SBP has prepared the attached guidelines for Country Risk Management. Banks/DFIs, having cross border exposures both on and off balance sheets, are advised to follow these guidelines. However, the guidelines are flexible in that the banks/DFIs can adapt them in line with the size and complexity of their cross border business.

All banks/DFIs are required to put in place their respective Country Risk Management policies and procedures duly approved by their BOD as soon as possible, but no later than three months from the date of this circular. A copy of the policy should be sent to the Banking Supervision Department, State Bank of Pakistan. The SBP inspectors, during the course of their regular inspection of the banks/DFIs, will check the policies and procedures on Country Risk Management of the concerned bank/DFI.

Please acknowledge receipt.

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Enclose: As above.