Financial Risk Manager: SBP amends banking prudential regulations

SBP amends banking prudential regulations
Thursday, February 12, 2009

The State Bank of Pakistan has set new code for the obtaining of financial statement from borrowers with following changes in prudential regulations;

Banks /DFIs are required to obtain copy of audited financial statement of every borrower, which is a limited company, or where the exposure limit exceeds Rs 10 million.

Banks/DFIs may also accept a copy of financial statement duly audited/certified by a practising Cost and Management Accountant in case of a borrower other than a public company or a private company, which is a subsidiary of a public company.

If the borrower is a public limited company and exposure exceeds Rs 500 million, banks/DFIs should obtain the financial statement duly audited by a firm of Chartered Accountants which has received satisfactory rating under the Quality Control Review (QCR) Program of the Institute of Chartered Accountants of Pakistan.

Subsequently, if the firm's rating is downgraded in QCR program, then the financial statements of such borrowers are audited in the subsequent year by a firm having satisfactory rating under QCR.

Banks/DFIs may waive the requirement of obtaining copy of financial statements when the exposure net of liquid assets does not exceed the limit of Rs 10 million.

Financial statements signed by the borrower will suffice where the exposure is fully secured by liquid assets.

Banks/DFIs have been advised to communicate the contents of this circular to all of their existing borrowers, which are public limited companies and their limits exceed Rs 500 million so that they will submit the financial statements in accordance with the above instructions after December 31, 2009.

posted @ 9:40 AM,

At February 14, 2009 at 3:54 PM, Shaukat Baluch said...: In cases where the exposure limit does not exceeds Rs 10 million, the financial statements should be verified by the cA or CMA.
I also propose to make provisions in the prodential regulations that in case the debt:equity ratio is 50:50 or more, the borrower should submit management evaluation/efficiency report to compare that management is efficiently persuing the goals for which the loan(s) was obtained.This evalution must be done by cost & Management Accountant other than the Auditor of the borrower, who may be registered with SBP.
This arrangement shall, if not elemate,minimize the loan defaults.
Shaukat Baluch,FCMA
At February 15, 2009 at 8:27 PM, Anonymous said...: I dont agree with the Mr shaukat comments .As per my opinion the financial statements should be certified by the audit firms rather than other peoples becauase these firms are having resources to conduct this assignment.