Corporate/commercial banking: SBP amends Prudential Regulations

RECORDER REPORT

KARACHI: The State Bank of Pakistan (SBP) has made amendments to Prudential Regulations for corporate/commercial banking in order to provide flexibility to banks, DFIs.

According to the amendments made in paragraph 2 of Regulation R-7 of the abovementioned Prudential Regulations, the existing limit of US$ 250,000, for issuance of unsecured guarantees by the banks/DFIs in Pakistan against the back-to-back/counter-guarantees of the banks situated in foreign countries not meeting the prescribed rating of at least ‘A’, has been enhanced to US$ 500,000 if tenor of such guarantees is up to one year.

Moreover, for the back-to-back/counter-guarantee issuing banks situated in foreign countries, National Scale Rating of at least ‘A’ or equivalent shall also be acceptable provided the guarantee issuing bank in Pakistan is comfortable with it.

Accordingly, paragraph 2 of Regulation R-7 has been amended to read in full as:

“The requirement of security can also be waived by the banks/DFIs in case of guarantees issued to Pakistani firms and companies functioning in Pakistan against the back to back/counter guarantees of branches of guarantee issuing bank/DFI or banks/DFIs rated at least ‘A’ or equivalent by a credit rating agency on the approved panel of State Bank of Pakistan or Standard & Poor, Moody’s, Fitch-Ibca or Japan Credit Rating Agency (JCRA). Besides, in case the counter guarantee issuing bank is situated in a foreign country, National Scale Rating of at least ‘A’ or equivalent or the rating of at least ‘A’ or equivalent by a local credit rating agency of the respective country shall also be acceptable, provided the guarantee issuing bank in Pakistan is comfortable with and accepts the counter guarantee of such foreign bank.

However, the prescribed rating requirement for banks situated in foreign countries may be relaxed for transaction amount up to US$ 250,000 irrespective of tenor and up to US$ 500,000 if tenor is up to one year, subject to internal credit controls and approvals of the concerned bank/DFI in Pakistan. For transaction amounts greater than US$ 250,000 having tenor of more than one year and for transaction amounts greater than US$ 500,000 irrespective of tenor, banks/DFIs may approach the State Bank of Pakistan for specific approvals/exemption, on case by case basis, where the prescribed minimum rating requirement cannot be complied with. The banks/DFIs are encouraged to set internal limits for acceptance of guarantees issued by other banks/DFIs based on, inter alia, their own risk appetite and risk profile of the counter-guarantee issuing bank,” says BPRD Circular Letter No. 9 of May 14, 2012.