KARACHI (November 11 2003): Dr Ishrat Husain, Governor, State Bank of Pakistan (SBP), assured a delegation of Karachi Stock Exchange (KSE) members, that banks would be allowed two-year time to bring their exposures within the prescribed limit and share valuation would be calculated on cost basis, while development financial institutions have been excluded from 20 percent restriction of equity investment.
The Karachi Stock Exchange (KSE) delegation, headed by Chairman Firozuddin A. Cassim, called on the Governor, State Bank of Pakistan, Dr Ishrat Husain, to discuss the impact of Prudential Regulations for Corporate/ Commercial Banking issued by the State Bank of Pakistan, on the equity market.
The Governor SBP explained the underlined objectives of the new Prudential Regulations, and made it clear that these regulations are meant to strengthen the equity market.
He said that all efforts of the central bank are directed to improve the image of the country, to enhance its international rating in order to attract portfolio investments.
He assured the delegation that there will be no abrupt withdrawals by the banks, in order to avoid any disruption of the market, and all efforts will be made by the SBP to allow smooth transition.
In this regard he explained the policy of encouraging the asset management companies to float mutual funds, and to introduce fund managers for provident funds etc.
He also explained that the advent of new Islamic banks would also help strengthen the stock market.
Referring to certain cases of relatively high exposure by banks, he assured the delegation that these would be allowed two years' time to bring their exposures within the prescribed limits.
He also appreciated the explanation of the delegation about the role of the DFIs, and their removal from the application of these regulations in order to enable them to play their primary role to support the equity market, and assured that this issue will be also considered favourably while reviewing the regulations.
He said that a consultative process would continue to achieve national objectives in the financial sector.
He also agreed to review the valuation of banks' portfolio at cost while calculating their investment limits, and to extend the time frame for disinvestment of extra shares taken up as part of underwriting obligations.
While appreciating the need to regulate the activity of commercial banks in the stock market, the KSE Chairman briefed the Governor about market perception on these regulations and drew his attention towards various issues especially in the context of time frame for implementation of these regulations, inclusion of DFIs for the purpose of these regulations, off-loading of shares underwritten by the banks/DFIs and its time frame, valuation mechanism in accordance with SBP guidelines for valuation of marketable securities etc, and the practical difficulties likely to be faced due to implementation of the Regulations by the banks and DFIs, and their adverse impact on the stock market.
The KSE delegation also included Arif Habib, Director, Amin Issa Tai and Salim Chamdia former Chairmen and Muhammad Yacoob Memon, General Manager.
According to sources, DFIs such as Pak-Kuwait and Pak Libya, would not have any restriction prescribed for equity investment in the Prudential Regulations like 20 percent investment as per their equity.
Moreover, the Islamic Banks were encouraged to park their funds in the equity market and they will have the option to invest as much as 35 percent of their equity in the stock market, as compared to 20 percent allowed to commercial banks.
