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050308
STATE BANK OF PAKISTAN - BANKING POLICY DEPARTMENT
BPD Circular No. 8 of 2005
March 08, 2005
The Presidents/Chief Executives,
All Banks/DFIs
Dear Sirs/Madam,
PRUDENTIAL REGULATIONS FOR CORPORATE /COMMERCIAL
BANKING
AND SMALL AND MEDIUM ENTERPRISES FINANCING
Please refer to the Prudential Regulations issued vide BPD circular No 35 dated
28th October 2003.
2. The following two amendments have been made in respect of the captioned
regulations:
A) Modification in the features of Preference Shares: The Paragraph at serial
No.9 & 8 of Definition Part of the PRs for Corporate and Commercial Banking and
PRs for SMEs respectively, “Equity of the Borrower” has been substituted as
under:
“Equity of the Borrower includes paid-up capital, general reserves, balance in
share premium account, reserve for issue of bonus shares and retained earnings /
accumulated losses, revaluation reserves on account of fixed assets and
subordinated loans.
The Preference Shares, only with the following features, will now also be
included in the equity of the borrower:
• There should not be any provision for redemption or the redemption should be
at the option of the issuer. In case the issuer is given an option to redeem the
preference shares, as per agreed terms and conditions, the issuer will redeem
the shares only through a sinking fund created out of the profits of the
company. Further, the sinking fund created for this purpose would not be
calculated towards the equity of the issuer.
• The terms and conditions should not give rise to a contractual obligation on
the part of the issuer to deliver another financial asset or exchange another
financial instrument under conditions that are or can be potentially
unfavourable to the issuer. However, an option to convert preference shares into
common shares may be included in the features of the preference shares.
• The terms and conditions of the preference shares should not be such as to
compel the issuer economically, financially or otherwise to redeem the shares.
• Payment and distribution of dividend to the holders of preferred shares,
whether cumulative or non-cumulative should be at the discretion of the issuer.”
B) De-classification of restructured/rescheduled accounts ( Para 3 of R-8 of PRs
for Corporate and Commercial Banking, and Para 3 of R-11 of PRs for SMEs): It
may be noted that “The condition of one year retention period, prescribed for
restructured/rescheduled loan account to remain in the classified category, will
not apply in case the borrower has repaid or adjusted in cash at least 50% of
the total restructured loan amount (principal + mark-up), either at the time of
restructuring agreement or later-on during the grace period if any. “
3. All other instructions on the subject will, however, remain unchanged.
4. Please acknowledge receipt.
Yours faithfully,
S/d
(MUHAMMAD KAMRAN SHEHZAD)
DIRECTOR
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