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040524
STATE BANK OF PAKISTAN - BANKING SUPERVISION DEPARTMENT
BSD Circular No .06 of 2004
May 24, 2004
The Presidents/ Chief Executives
All Banks/DFIs
Dear Sirs/Madam,
INVESTMENT IN
SUB-ORDINATED/UNSECURED
TFCs BY BANKS/DFIs
Please refer to BSD Circular No.5 dated the 25th March, 2003 on Minimum Capital Requirements, and Regulation R-4 of Prudential Regulations for Corporate and Commercial Banking relating to limit on exposure against unsecured financing facilities.
2) Notwithstanding the limit of Rs.500,000 for unsecured financing facility to one person prescribed under Prudential Regulation R-4 of Corporate and Commercial Banking, it has been decided to allow banks/DFIs to invest in subordinated/unsecured TFCs issued by other banks/DFIs to raise Tier-II Capital (hereinafter called “such TFCs”) in accordance with the rules contained in BSD Circular No.5 dated 25th March, 2003 regarding Minimum Capital Requirement, and subject to the following restrictions:
i) The banks/DFIs’ investments in such TFCs will be assigned a risk weight of 100% and will not be deducted from Tier-I capital for the purpose of calculating the Capital Adequacy Ratio, provided the Banks/DFIs’ investment in such TFCs will not exceed 10% of their equity (in the case of DFIs not mobilizing deposits/ COIs from general public the investment in such TFCs will not exceed 25% of their equity).
ii) The investments of the banks/DFIs in such TFCs in excess of the limits prescribed at Para 2(i) above will be assigned a risk weight of 0% for Capital Adequacy Purpose and will be deducted from Tier-I Capital of the investing bank/DFI.
iii) A bank/DFI’s investment in a single issue of such TFCs of any other bank/DFI will not at any time exceed 5% of its own equity or 15% of the total size of the issue, whichever is less.
3) The banks/DFIs’ investments in such TFCs will not be counted towards the aggregate limit on unsecured financing facilities prescribed under Prudential Regulation R-4 of Corporate and Commercial Banking .
4) All other instructions on the subject will remain unchanged.
Please acknowledge receipt.
Yours faithfully,
(JAMEEL AHMAD)
Director
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