Prudential Regulations

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PRUDENTIAL REGULATIONS FOR CORPORATE / COMMERCIAL BANKING

(Updated on January 31, 2011)

BANKING POLICY & REGULATIONS DEPARTMENT

STATE BANK OF PAKISTAN

Disclaimer: State Bank of Pakistan compiles a booklet of Prudential Regulations from time to time for convenience of users. Updated version of such a booklet containing amendments in the regulations made through circulars/Circular letters to date is being issued. Due care has been taken while incorporating amendments, however, errors and omission may be expected. In case of any ambiguity, users are advised to refer to the original circulars/circular letters on the relevant subject(s), which are available on SBP’s website (www.sbp.org.pk).

THE TEAM

NAME

DESIGNATION

Inayat Hussain

Executive Director (BPRG)

Syed Irfan Ali

Director (BPRD)

Muhammad Saleem

Additional Director (BPRD)

Kazi Sarfraz

Joint Director (BPRD)

Amjad Ali

Joint Director (BPRD)

Ishrat Hussain

Deputy Director (BPRD)

Rao Ahmed Mukhtar

Deputy Director (BPRD)

Mahvish Naeem

Assistant Director (BPRD)

Nazia Tahir Bodla

Assistant Director (BPRD)

Website Address: www.sbp.org.pk

CONTENTS PART-A PART-B Definitions. Regulations. RISK MANAGEMENT (R) Regulation R-1 Regulation R-2 Regulation R-3 Regulation R-4 Limit on exposure to a single person. Limit on exposure against contingent liabilities. Minimum conditions for taking exposure. Limit on exposure against unsecured financing facilities. Linkage between financial indicators of the borrower and total exposure from financial institutions. Exposure against shares/TFCs and acquisition of shares. Guarantees. Classification and provisioning for assets. Assuming obligations on behalf of NBFCs. Facilities to private limited company. Payment of dividend. Monitoring. Margin requirements. CORPORATE GOVERNANCE (G) Regulation G-1 Corporate governance/board of Directors & management. Dealing with directors, major shareholders & employees of the banks/DFIs. Contributions and donations for charitable, social, educational and public welfare purposes. Credit rating. 21 26 27 27 08 08 09 10 10 01 08

Regulation R-5

Regulation R-6

12 14 15 18 19 19 19 19

Regulation R-7 Regulation R-8 Regulation R-9 Regulation R-10 Regulation R-11 Regulation R-12 Regulation R-13

Regulation G-2 Regulation G-3

Regulation G-4

CDD AND ANTI MONEY LAUNDERING (M) Regulation M-1 Regulation M-2 Regulation M-3 Regulation M-4 Regulation M-5 Customer Due Diligence (CDD). Anti-money laundering measures. Record retention. Correspondent banking. Suspicious transactions. OPERATIONS (O) Regulation O-1 Undertaking of cash payments outside the bank’s authorized place of business. Window dressing. Reconciliation of inter-branch accounts and settlement of suspense account entries. Maintenance of assets in Pakistan. Foreign currency deposits under FE 25-1998 36 36 36 37 37 39-67 28 31 32 33 34

Regulation O-2 Regulation O-3

Regulation O-4 Regulation O-5 Annexures

PREFACE The amendments made in the Prudential Regulations for Corporate/Commercial Banking during January 31, 2009 to January 31, 2011 have been incorporated in this updated version for ease of reference of the users. The Prudential Regulations for Corporate/Commercial Banking cover four categories viz. Risk Management (R), Corporate Governance (G), Customer Due Diligence and Anti Money Laundering (M), and Operations (O). It may further be noted that any financing facility, other than the one defined under the SMEs, Consumer, Agriculture and Micro Financing, shall be governed by the Prudential Regulations for Corporate/Commercial Banking. However, in case of international operations, the Prudential Regulations of host country shall prevail. The Prudential Regulations for Corporate/Commercial Banking do not supersede other directives issued by State Bank of Pakistan in respect of areas not covered here. Any violation or circumvention of these regulations shall...
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