As the banks are required to cap their investment in shares at 20 percent of their equity, the strategic investment is excluded from the subject limit to enable banks to take exposure in these investments within overall permissible limits per company.
In order to give a more objective criteria for marking an investment as strategic, as well as replacing the condition for banks to obtain prior approval from the State Bank of Pakistan (SBP), the strategic investment will continue to be excluded from the 20 percent aggregate exposure limit in stocks. While the investment marked as such at the time of investment, shall be retained by the banks/DFIs for at least five years.
Strategic investment is defined to be as an investment which a bank/DFI makes with the intention to hold it for a longer duration and should be marked as such at the time of investment and can only be disposed-off with the prior approval of SBP.
According to a SBP notification, if there is a series of purchases of any company's stocks, the minimum retention period of five years shall be counted from the date of last purchase while the banks/DFIs' investment in a company can be segregated to be categorised as strategic and non-strategic.
The banks' decision to make strategic investment carries great significance, keeping in view the implications of such investment in terms of liquidity management and long term outlook of the investee companies; thus, such decisions have to be undertaken with proper diligence, taking into account all relevant factors.
Accordingly, it is understood that a committee, clearly designated/empowered by the bank, should take the decision for strategic investment. All Record of transactions/decisions, taken by the committee, regarding strategic investment should be properly maintained and kept in a separate file, for provision of the same to the SBP Inspection Team during their visit to the bank.
The banks/DFIs may review their existing strategic investment portfolio in the light of the above criteria, and investments, not falling in strategic portfolio, may be shifted to the Trading Portfolio. However, if any such shifting results in an excess over the 20 percent limit, prescribed under Regulation R-6, the excess should be regularised and brought back within the 20 percent limit within 3 months.
The position of investment in strategic portfolio will be reported by the banks/DFls to the Banking Policy Department, within the 15 days from the date of issue of this Circular Letter, and within two working days from the date of investment in strategic portfolio.