The State Bank of Pakistan (SBP) has changed how much money banks can put into shares, startups, mutual funds, REITs and private equity funds.
The central bank has amended Regulation R-6 of its Prudential Regulations for Corporate/Commercial Banking through BPRD Circular Letter No. 22, issued on October 23. The new limits apply to all banks and development finance institutions (DFIs).
New Investment Limits
For shares of any single company, a bank’s total investment must stay within the lower of two limits. These are 5 percent of its Tier-I capital or 10 percent of the paid-up shares of the investee company.
Tier-I capital will be taken from the bank’s latest half-yearly reviewed or annual audited financial statements.
For any single startup, including fintech startups, the cap is the lower of 5 percent of Tier-I capital or Rs. 500 million.
For units of any single mutual fund, REIT or private equity fund, the limit is the lower of 5 percent of Tier-I capital or 20 percent of that fund’s units.
Banks Need a Formal Policy
SBP has also told banks and DFIs to have an approved policy for equity investments. It must include an internal evaluation process to assess each investment decision objectively.
That process must consider the bank’s financial standing, overall investment portfolio, risk appetite, expected return, expertise and business strategy, including an exit plan.
Strategic investments and investments in all kinds of mutual funds and private equity funds will also count towards these limits. However, National Investment Trust (NIT) units are excluded until NIT is privatized.
SBP said all other instructions on the subject remain unchanged. Earlier this year, the central bank gave local banks more control over foreign investment and dividends.
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