1

Business lawsPRUDENTIAL PRUDENTIAL REGULATION FOR REGULATION FOR

CORPORATE CORPORATE COMMERCIAL BANKINGCOMMERCIAL BANKING

2

RISK MANAGEMENT

CORPORATE GOVERNANCE

KYC AND ANTI MONEY LAUNDERING

OPERATIONS

3

RISK MANAGEMENT

4

The total outstanding exposure must not exceed 30% of the bank equity. However the total outstanding exposure to a bank must not exceed 50% of a bank’s dfi equity, subject to the condition subject to the condition that the maximum outstanding against fund based exposure does no exceed 35% of the bank’s equity.

{R-1}

5

Contingent liability must not exceed 10% of the its equity. Contingent liability excludes bill for collection, obligations under letters of credit and letters of guarantee to the extent of cash margin retained by the bank, non-fund based exposure to the extend covered by liquid assets. Claims other than those related to provision of facilities (fund based or non-fund based) to the bank constituents, where the probability of these conversion are remote.

{R-2}

6

Bank must not provide unsecured loan in any form of a sum not exceeding R.s 500,000. Banks must ensure that the aggregate exposure against all their clean facilities which must not exceed the amount of their equity.

{R-4}

7

Banks must not issue any guarantee or letter of comfort nor assume any obligation whatsoever in respect of deposits, sale of investment certificates, issue of commercial papers, or borrowings of any non-banking finance company.

{R-9}

8

Banks must formulate a policy, duly approved by their board of directors, about obtaining personal guarantees of directors of private limited companies.

{R-10}

9

Banks must not pay any dividend on their shares unless they meet the minimum capital requirements as laid down by the state bank of Pakistan from time to time., all their classified assets have been fully and duly provided for in accordance with the prudential regulations and to the satisfaction of state bank and all the requirements laid down in banking companies ordinance, 1962 relating to payment of dividend are fully complied.

{R-11}

10

While extending fund based facilities shall obtain monthly statements from borrowers that contains a bank-wise break-up of outstanding amounts with the total value of stocks and receivables there-against.

{R-12}

11

Banks are free to determine the margin requirements on facilities provided by them to their clients taking into account the risk profile of the borrowers in order to secure their interest. Bank will also continue to observe margin restrictions on shares. State bank will continue to exercise.

{R-13}

12

CORPORATE GOVERNANCE.

13

The fit and proper test is applicable on the sponsors who apply for a commercial banking license, the investors acquiring strategic stake in the bank, major shareholders of the companies and for the appointment of directors.

{G-1(A)}

14

The board shall approve and monitor the objectives, strategies and overall business plans of the institution and shall oversee that the affairs of the institution are carried out prudently. All board members must attend at least 1-2weeks training program which will enable them to play effective role. The board must also define the authorities and key responsibility.

{G-1(B)}

15

Banks must not enter into leasing renting and sale/purchase of any kind with their directors, officers, employees. Banks must not take unsecured exposure or take exposure against the guarantee of any of their directors, family members , any firm or private company, public limited, their chief executive and shareholders holding 5% or more of the share capital of the bank.

{G-2}

16

Banks shall strictly observe the following rules in the matter of making any donation, charity or public welfare purpose. All donations made must be approved by the board of directors an must disclose the total amount of donation made in their annual audited financial statement.

{G-3}

17

It is mandatory for all banks to have themselves credit rated by a credit rating agency on the approved panel of the state bank of Pakistan.

{G-4}

18

KYC AND ANTI MONEY LAUNDERING

19

For starting a relationship with a new customer and maintaining a relationship with current customers banks must follow guidelines given to them. Each bank must formulate and keep in place a comprehensive KYC policy approved by the BOD.

M-1

20

Banks must obtain introduction on new account to assess the prospective customer integrity respectability and nature of business. Carelessness in this regard may lead to serious consequences. Guidelines in this regard are set out in in this section.

{M-1(5)}

21

Banks are often advised to exercise due diligence which is not a one time exercise to be conducted but it is a on-going process for prudent banking practices. For this banks must up compliance unit, monitor the accounts and transaction, update customer information and records, chalk out plans of imparting suitable training to the staff of bank periodically.

{M-1(7)}

22

Banks will also undertake customer due diligence measures including indentifying and verifying the identity of walk-in-customers conducting transactions above an appropriate limit to be prescribed by the banks.

{M-1(9)}

23

Banks are advised to follow the following guidelines to safeguard themselves against their involvement in money-laundering activities and other unlawful trades.

M-2

24

The records of transaction and identification data maintained by banks occupy critical importance. They must be maintained in systemic order. The records maintained be for a minimum period of five years. However banks must maintain those records for longer period where transaction relate to litigation or are required by the court of law.

M-3

25

The records relating to the suspicious transactions reported by the bank will be retained by the bank even after the lapse of the period till such time the bank gets permission from state bank of Pakistan to destroy such record.

{M-3(3)}

26

Banks must gather sufficient information about their correspondent banks to understand fully the nature of their business. The banks should also establish correspondent relationships with only those foreign banks that have effective customer acceptance and KYC policies and are effectively supervised by the relevant authorities. They should also refuse to enter into a banking relationship with a bank which has no physical presence. Further they must pay attention when continuing relationships with banks which have poor KYC standards. And approval should be obtained from executive, vice president or equivalent before starting a new banking relationship.

M-4

27

OPERATIONS

28

Banks shall not undertake any business of cash payments other than the authorize place of business. However they may collect and payment of cash for their prime customers through cash carrying companies registered with concerned government department.

{O-1}

29

Banks must refrain from adopting any measures or practices whereby they would either artificially or temporarily show an ostensibly different position of banks' account as given in their financial statements. Particular care shall be taken in showing their deposits, MCR, non-performing loans, profit, inter-bank accounts, etc

{O-2}

30

Banks shall not invest FE 25 deposit in foreign currency neither shall they invest place such deposits in fund management schemes of other banks whether in Pakistan or abroad. They shall be free to decide the rate of return on deposits mobilized under fe-25 and be free to use such deposits for their trade-related activities provided the exchange risks are adequately covered

{O-5}