SBP revising policy for opening Pak banks branches abroad

ISLAMABAD: The State Bank of Pakistan (SBP) has decided to revise its policy for establishing subsidiaries/opening of branches by Pakistani banks in different countries under a draft policy on investment abroad by resident Pakistanis.

According to revised draft of policy 2016 envisaged by the SBP states that sound Pakistani incorporated banks will seek SBP permission to establish their overseas subsidiaries and branches. 

They will have to differentiate between the establishment expenses and  minimum capital requirement/capital adequacy requirement of the overseas Central Bank/supervisory authorities. 

Overseas subsidiaries and the branches will have to bear their expenses from the revenues generated abroad and funds remitted initially with SBP’s permission as establishment expenses and for meeting the minimum capital requirements.  Banks are advised to obtain an NOC from the Banking Policy & Regulations Department before establishment of representative/ marketing/ liaison offices. 

However, prior permission of the Exchange Policy Department is not required for establishment of representative/ marketing/ liaison offices by Pakistani incorporated banks. Banks can remit up to maximum of $50,000 per financial year under annual recurring expenses of representative/marketing /liaison offices. Any remittance above the aforesaid ceiling would require prior permission of the Exchange Policy Department.

Feasibility should contain projected balance sheet, profit and loss statement and cash flow statement and audited annual accounts for last three years to assess the financial strength of the bank.

In case of business expansion in the form of acquisition in the country of investment or from the country of investment to any other country, bank will seek permission of the SBP. The potential investor will submit an undertaking to deploy Pakistani staff in the branch or subsidiary if there is no limitation of overseas central banks. In case of any limitation, maximum number of Pakistanis will be accommodated in overseas banking operations.

After evaluating the requests, an “in-principle” approval will be issued and the remittance of funds for any consultancy or legal formalities will be allowed at this stage. For formal approval, the banks will be required to submit the following documents: Formal approval of the Banking Policy & Regulations Department and approval of the overseas Central Bank.

Pakistani banks having overseas operations are allowed to remit funds to meet the minimum capital requirement (MCR)/capital adequacy requirement (CAR) of their overseas branches after prior approval of the SBP. The amount of remittance will depend upon the MCR/CAR prescribed by the overseas central banks. 

The requests of banks for equity injection in its overseas operations for growth of business purposes will be evaluated against comprehensive business proposal submitted with their application, including projected financial statements and allied benefits to the economy. Growth in risk-weighted assets due to investment in riskier assets and profit repatriation history would also be taken into account. The banks working abroad either in branch mode or subsidiary mode are required to repatriate their share of profits annually as per prescribed mechanism.

Further, banks will submit an undertaking to create maximum employment opportunity abroad for Pakistanis subject to the host country regulations and would repatriate their share of profit as per BP&RD’s circular No5 of 2009. After permission, the potential investor will submit a return on Appendix V-96 and Annual Performance Report (APR) of the business every year.