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February 26, 2021

SBP amends rules on assets securitisation

Business

February 26, 2021

KARACHI: The State Bank of Pakistan (SBP) on Thursday amended guidelines on assets securitisation through special purpose vehicle (SPV) to facilitate the development of housing finance as well as capital market in the country, a circular said.

The SBP said it has decided to partially amend the clauses of SPV circular, to the extent of residential mortgage based securities (RMBS) and commercial mortgage based securities (CMBS), respectively.

The banks and the development finance institutions (DFIs), having capital adequacy ratio of at least 1.3 times of existing regulatory requirements, could establish up to 100 percent owned SPVs for the issuance of RMBS and CMBS against a pool of residential and commercial mortgage loans.

In this regard, while establishing such SPVs, banks and DFIs have to ensure that they were not exposed to risks, especially reputation and legal risks, on account of their SPVs.

The SBP said that banks and DFIs could use their names with their own SPVs in compliance with applicable laws; however, banks and DFIs’ names would not be used in the RMBS and CMBS issued by such SPVs. The banks would not make any direct investments in the RMBS / CMBS issued by their own SPVs and would not take any exposure against the security of RMBS / CMBS issued by such SPVs.

The banks might provide adequately secured, fund and non-fund based facility to such SPVs on arm’s length and commercial basis and in compliance with all the applicable rules and regulations.

“The banks / DFIs may sell mortgage loans to their own SPVs strictly on ‘true sale’ basis and the SPV or RMBS / CMBS investors shall not have any recourse on the parent bank/DFI,” it said.