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SBP amends prudential rules

15 May, 2012

KARACHI: The State Bank of Pakistan (SBP) has made amendments in Prudential Regulations for Corporate/ Commercial Banking in order to provide flexibility to the banks/ Development Finance Institutions (DFIs), said SBP here on Monday.

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KARACHI: The State Bank of Pakistan (SBP) has made amendments in Prudential Regulations for Corporate/ Commercial Banking in order to provide flexibility to the banks/ Development Finance Institutions (DFIs), said SBP here on Monday.  According to amendments, the existing limit of $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 $500,000 if tenor of such guarantee 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.According to amendment “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 $250,000 irrespective of tenor and up to $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 $250,000 having tenor of more than one year and for transaction amounts greater than $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.

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