Banks propose changes in prudential regulations

Posted on 02.20.07 by StockPK Team @ 12:07 pm    

Banks want to impose 30 percent margin on listed companies share financing. Besides this banks want their exposure in share markets to be protected by imposing eight new safeguards.

Sources of banking industry said on Monday that keeping best international practices in view the banks have drafted five major changes in prudential regulations meant for share markets of the country.

Sources said the proposed regulation number R-41 reads: Exposure against the shares of listed companies shall be subject to minimum margin of 30 per cent of their current market value.

However it allows the banks to set higher margin requirements keeping in view other factors. The banks will monitor the margin on at least weekly basis and take appropriate action for top-up and sell out on the basis of their board of director’s approval, credit policy and pre-fact written authorisation from the borrower enabling the bank, DFI to do so. The proposed regulation R-39 proposed eight types of prohibitions to banks and DFIs in share trading.

The proposed draft says banks and DFIs shall not take exposure against shares and TFCs:

a. Against the security of shares and TFCs issued by banks themselves.

b. Provide unsecured credit to finance subscription towards floatation of share capital and issue of TFCs.

c. Take exposure against the non-listed TFCs or the shares of companies not listed on the stock exchanges. However banks DFIs may make direct investment in non-listed TFCs.

d. Take exposure on any person against the shares, TFCs issued by that person or any of his group companies. For the purpose of this clause, a person shall not include individual.

e. Take exposure against sponsors’ director shares, issued in their own name or in the name of their family members of banks and DFIs.

f. Take exposure on any person, whether singly or together with other family members or companies owned and controlled by him or his family against any shares of any commercial banks DFIs in excess of five percent of paid up capital of the share issuing bank and DFIs.

g. Take exposure against the shares, TFCs of listed companies that are not member of the Central Depository System.

h. Take exposure against unsecured TFCs or non-rated TFCs or TFCs rated below “BBB” or equivalent.

With regard “total exposure” banks have proposed regulation number R-38 by saying “while taking exposure banks DFIs shall ensure that at no time the total exposure availed by the borrower shall exceed 20 percent of the banks or DFIs equity.”

With regard acquisition of shares banks proposed regulation number R-40 which reads “banks, DFIs shall not hold shares in any company whether as pledge, mortgage, or absolute owner, of an amount exceeding 30 percent of the paid up capital of that company or 30 percent of their own paid up share capital and reserves, which ever is less.” The draft regulation number R-14 proposes details of handling and approval of share financing application.

The proposed regulation says while considering proposal for any exposure, including renewal, enhancement and re-scheduling, re-structuring, banks and DFIs should give due weightage to the credit report relating to the borrower and his group obtained from Credit Information Bureau (CIB) of State Bank of Pakistan.

Banks and DFIs shall not approve and provide any exposure, including renewal, enhancement and re-scheduling, re-structuring until and unless the loan application for prescribed by the banks DFIs is accompanies by a borrower’s basic fact sheet under the seal and signature of the borrower as per approved format of the state bank of Pakistan.

Source: The News