FINANCIAL REGULATORS

Challenges & Mitigations

HAFIZ MUHAMMAD AHMAD

BBA163033
Financial Regulatory Bodies of Pakistan
1. State Bank of Pakistan
COVID19 is
challenging human life globally and straining
economic activity. Governments as well as central banks are taking extraordinary
measures to address the challenges associated with this situation. Pakistan is no
exception. SBP is taking a range of measures to protect the safety of public and
address the economic impact. In line with our mandate, we are focused on ensuring
that inflation remains contained, reducing the impact of COVID-19 on economic
growth and employment, and overseeing that the banking and payments system
remains healthy. In this context, we have taken a number of policy measures already,
as described below. We are working with stakeholders to continuously assess the
situation and stand ready to take additional measures as the situation related to
COVID-19 and its impact on the economy become clearer.
Challenges & Mitigations:
a. SBP reduces policy rate by a cumulative 525 bps since 17 March 2020
The Monetary Policy Committee (MPC) of the SBP, in its meeting on 15 May 2020,
cut the policy rate by 100 basis points to 8 percent. This brings the cumulative easing
over the past two months to 525 basis points.
This decision reflected the MPC's view that the inflation outlook has improved
further in light of the recent cut in domestic fuel prices. As a result, inflation could
fall closer to the lower end of the previously announced ranges of 11-12 percent this
fiscal year and 7-9 percent next fiscal year.
The MPC highlighted that the coronavirus pandemic has created unique challenges
for monetary policy due to its non-economic origin and the temporary disruption of
economic activity required to combat it. While easier monetary policy can neither
affect the rate of infection transmission nor prevent the near-term fall in economic
activity due to lockdowns, it can provide liquidity support to households and
businesses to help them through the ensuing temporary phase of economic
disruption. In particular, the successive policy rate cuts and sizeable cheap loans
provided through the SBP’s enhanced refinancing facilities have helped maintain
credit flows, bolster the cash flow of borrowers, and support asset prices. This has
contained the tightening of financial conditions that would otherwise have amplified
the initial necessary contraction in activity.
The MPC noted the swift and forceful monetary easing of 525 basis point in the two
months since the beginning of the crisis and SBP's measures to extend principal
repayments, provide payroll financing, and other measures to support liquidity.
Together with the government's proactive fiscal stimulus-including targeted support
packages for low-income households, SMEs, and construction-as well as assistance
from the international community, these actions should provide ample cushion to
 growth and employment, while also maintaining financial stability. This coordinated
and broad-based policy response has provided relief and stability and should provide
support for recovery as the pandemic subsides.
In reaching its decision, the MPC considered key trends and prospects in the real,
external and fiscal sectors, and the resulting outlook for monetary conditions and
inflation.
b. SBP Refinance Scheme to Support Employment and Prevent Layoff of
Workers
We have introduced a temporary refinance scheme for payment of wages and
salaries to the workers and employees of the business concerns with following key
features. Further incentives under the same scheme have been provided today.
SBP enhances scope and financing limits under its Rozgar Scheme
On 11 May 2020, SBP took a step further to facilitate middle and large businesses,
which employ large numbers of people, to ensure payment of wages and salaries
under this scheme. SBP enhanced its refinance limits to finance up to 100% of wages
and salaries of businesses with average 3- month wage bill of up to Rs500 million.
This can be used for the onward payment of wages and salaries April, May and June,
2020. Earlier, 100% financing was available up to a wage bill of Rs200 million only.
Similarly, for businesses with 3-month wage bill exceeding Rs500 million, State
Bank will now finance of up to 75% with maximum financing of Rs1 billion. Earlier,
75% financing was available up to a maximum of Rs375 million and 50% up to a
maximum of Rs500 million. These changes are applicable with immediate effect.
However, businesses that had earlier availed lower financing due to applicable limits
can now avail additional financing on the basis of revised criteria.
A comparison of previous and new financing limits is given in the
following table:
Category Wages and Salaries Previous Loan New Loan Limits
Bill for 3 months Limit
(1) (2) (3) (4)

A Less than or equal 100% of 3 months 100% of 3 months

to Rs. 200 million wage bill wage bill
B More than Rs. 200 100% of 3 Rs. 200 100% of 3 months
million and less million or 75% of 3 wage bill
than or equal to months wage bill,
Rs.500 million whichever is higher
subject to a
maximum cap of
Rs 375 million
wage bill
C More than Rs.500 Rs. 375 million or Rs.500 million or
million 50% of 3 months 75% of 3 months
wage bill, wage bill,
whichever is higher whichever is higher
subject to subject to
maximum cap of maximum cap of
Rs. 500 million Rs. 1 billion

Further, SBP has also extended the availability of its refinance scheme to non-
deposit taking financial institutions as well. They can now avail financing under the
scheme for payment of wages and salaries of their employees.
Since the launch of the scheme till May 08, 2020, banks have received requests of
more than 1,440 businesses for the financing of over Rs. 103 billion for providing
wages and salaries to around one million employees whose jobs have been supported
because of this scheme. Of this amount, banks have already approved financing of Rs
47 billion for 500 companies covering over 450,000 employees.
c. Prime Minister's COVID-19 Pandemic Relief Fund-2020
The Government of Pakistan has established a relief fund namely Prime Minister's
Covid-19 Pandemic Relief Fund-2020 for providing relief and assistance to the
people of Pakistan affected by the Covid-19 pandemic in the country.
The fund will accept donations/contributions from people living inside and outside
Pakistan through various methods. For this purpose, a separate bank account has
been set up at National Bank of Pakistan (NBP) to collect funds.
The fund will be administered by the Poverty Alleviation and Social Safety Division
in consultation with the Finance Division.
d. Relief Package for Households, Businesses & Refinance Schemes
We have announced a comprehensive relief package, in collaboration with Pakistan
Banks Association (PBA), for households and businesses (microfinance, SMEs,
corporates, commercial, retail, and agriculture) to manage their finances through
this temporary phase of disruption.
Key highlights of the package are as follows:
Banks' overall pool of loanable funds has been increased.
To support the banking sector to supply additional loans to businesses and
households, SBP has reduced the Capital Conservation Buffer (CCB) from its existing
level of 2.50% to 1.50%. This will enable banks to lend an additional amount of
around Rs. 800 billion, an amount equivalent to about 10% of their current
outstanding loans. The reduced CCB level will remain applicable till further
instructions by SBP.
The regulatory limit on extension of credit to SMEs has been
permanently increased.
SMEs typically bear the brunt of credit supply contractions during periods of
heightened risk aversion and economic downturn. Therefore, as a tool to incentivize
banks to provide additional loans to retail SMEs, the existing regulatory retail limit
of Rs. 125 million per SME has been permanently enhanced to Rs. 180 million with
immediate effect. This measure will facilitate banks to provide more loans to SMEs,
which currently stand at around Rs. 470 billion
Borrowing limits for individuals have been increased for one year
The capacity to borrow from banks for individuals is limited by their capacity to bear
the burden of debt, defined in terms of a percentage of their income and known as a
Debt Burden Ratio (DBR). SBP has relaxed the DBR for consumer loans from 50% to
60%. This measure will allow about 2.3 million individuals to borrow more from
banks in this time of need.
Payment of principal on loan obligations will be deferred by banks
Banks and DFIs will defer the payment of principal on loans and advances by one
year. To avail this relaxation, borrowers should submit a written request to the banks
before 30th June 2020. They will, however, continue to service the mark-up amount
as per agreed terms and conditions. The deferment of principal will not affect
borrower's credit history and such facilities will also not be reported as
restructured/rescheduled in the credit bureau's data. The total amount of principal
coming due over the next year is about Rs. 4,700 billion.
Regulatory criteria for restructuring/rescheduling of loans have been
temporarily relaxed till 31st March 2021
For borrowers whose financial conditions require relief beyond extension of
principal repayment for one year, SBP has relaxed the regulatory criteria for
restructuring/rescheduling of loans. The loans that are re-scheduled/restructured
within 180 days from the due date of payment will not be treated as defaults. Banks
would also not be required to suspend the unrealized mark-up against such loans. In
addition, the timeline for classification of "Trade Bills" has been extended from 180
days to 365 days.
Margin call requirements against bank financing have been reduced
Keeping in view the steep decline in share prices, margin call requirement of 30%
vis-a-vis banks' financing against listed shares has been significantly reduced to 10%.
Banks have also been allowed to take exposure on borrowers against the shares of
their group companies. Banks have currently extended loans in excess of Rs. 100
billion against listed shares.
Relief package extended to borrowers availing loans under Refinance
Schemes
The scope of relief package was expanded on 3rd April, 2020 by allowing similar
relaxations to borrowers availing loans under various refinance schemes.
Borrowers from corporate, consumer, agriculture, SMEs and microfinance sectors
can avail deferment of principal amount for one year while continue servicing mark
up. They can also apply for rescheduling/restructuring if they are not able to service
mark-up payment.
Refinance schemes and their Shariah alternatives include:
 Long Term Financing Facility (LTFF)
 Financing Facility for Storage of Agricultural Produce (FFSAP)
 Refinance Facility for Modernization of SMEs
 Refinance and Credit Guarantee Scheme for Women Entrepreneurs
 Refinance Scheme for Working Capital Financing of Small Enterprises and
Low-End Medium Enterprises
 Small Enterprise (SE) Financing and Credit Guarantee Scheme for Special
Persons
e. Supporting the Health Sector to Combat the Virus
We are providing cheap loans for hospitals and medical centers to purchase medical
equipment for combating COVID-19. This will allow them to develop capacity for
treatment of infected patients of COVID-19.
Key Features:
Scope & Eligibility Criteria:
Long term finance facility for purchase of new/existing imported and locally
manufactured medical equipment to be used for combating COVID-19. All hospitals
and medical centers registered with respective provincial/federal
agencies/commissions engaged in controlling and eradication of COVID-19 will be
eligible under the facility.
Maximum financing limit:
Rs.500 Million (per Hospital/Medical Centre)
Tenor:
5 years including grace period of up to 6 months
Civil Work:
Up to 100% cost of civil works for setting up of isolation wards only
End User Rate:
Maximum 3% per annum (SBP rate of refinance will be 0%)
Validity of the facility:
30th September, 2020
Enhanced financing limit of Rs.500 mn for single hospital
On 1st May 2020, SBP enhanced the financing limit of a single hospital/medical
center under its Refinance Facility from Rs 200 mn to Rs 500 mn to strengthen
health sector in fight against COVID-19. Financing under this facility is being made
available by SBP at 0% to banks that can charge a maximum rate of 3% per annum to
hospitals/medical centers.
f. Ensuring the Availability and Continuity of Financial Services
We have introduced measures to fight the spread of Coronavirus (COVID-19)
through the financial system by increasing awareness among staff and customers
and banks, and issued detailed directives to ensure the availability of uninterrupted
financial services to bank customers.
SBP is continuously engaged with the industry to understand issues and challenges
and formulate a policy response accordingly. In this vein, SBP conducted a flash
survey covering all banks, Development Financial Institutions (DFIs) and Micro
Finance Banks (MFBs). The survey results show that the industry has started to take
preventive measures to limit the adverse repercussions of COVID-19. However, the
results also indicate diversity among the industry participants in terms of their
readiness to handle any worst-case scenario.
Banks/DFIs/MFBs were advised to adopt the following measures to help fight the
spread of COVID-19 to ensure availability of uninterrupted financial services:
Create awareness amongst the banks/DFIs/MFBs' staff and customers regarding
COVID-19;
Implement the guidelines issued by the World Health Organization, the Government
of Pakistan and the Provincial Governments, in letter and spirit, to ensure the safety
and health of employees and cleanliness at the workplace;
Take precautionary measures such as enhanced usage of cash counting machines,
encouraging customers to use Alternate Delivery Channels (ADCs) etc. to reduce
contact with currency notes and other financial instruments. Further, make
elaborative arrangements to provide uninterrupted financial services through ADCs
(e.g. ATMs, online banking, transactions through call centers etc.);
Reassess Business Continuity Plans (BCPs) in the existing situation and develop
suitable remedial plans, including allocation of human and other resources, for their
effective implementation;
Carry out an impact analysis to assess the consequences on business and operations
and enhance the monitoring frequency of key risk areas like credit, capital market
and foreign exchange exposures; and
Reach out to the key payment and settlement system partners such as NIFT, 1Link,
NCCPL and CDC to ensure continued availability of their services.
g. Promoting Digital Payments
We have waived all charges for customers using online fund transfer services, which
will allow customers to perform online interbank transactions free of cost. This will
contain the spread of COVID-19 by limiting the physical interaction of citizens at
bank branches.
Given the pivotal role of financial sector in providing services to the general public
and particularly the businesses, SBP after consultation with stakeholders has
instructed banks to take specific measures to provide their services seamlessly taking
due care of reducing the risk exposure amid corona virus. The objective of these
measures is to reduce the need for visiting bank branches or the ATMs and to
promote use of Digital Payment Services such as internet banking, mobile phone
banking etc.
Charges on fund transfers waived
SBP has instructed banks to waive all charges on fund transfers through online
banking channels such as Inter Bank Fund Transfer (IBFT) and SBP's Real Time
Gross Settlement System for customers. Thus people can transfer money through
mobile phones or internet banking avoiding the need to visit a bank branch or an
ATM without incurring any cost. They will also not incur any cost in case of using
ATMs or visiting bank branches for transferring large amounts and can avoid the use
of cash. Banks have been advised to facilitate their customers in using online
banking while taking all necessary precautions to ensure the safety and security of
customer's funds. Further, they will also ensure that call centres/helplines are
available 24/7 for instant customer support.
Banks to facilitate education fee and loan repayments
Financial industry has been instructed to immediately facilitate education fee and
loan repayments through internet banking or mobile devices. Financial institutions
shall also run awareness campaigns through different channels to educate customers
to use internet banking or mobile phones, limit use of currency notes and restrict
branch visits. Anticipating any frauds in the wake of digital transactions, SBP has
advised financial industry to increase vigilance on digital channels and increase
monitoring on cyber threats.
In order to implement the above instructions and take other necessary measures,
banks/DFIs/MFBs' have been advised to form a senior level committee to ensure
that the responses towards risks arising out of COIVID-19 are robust and adequate.
h. Relaxing Credit Requirements for Exporters and Importers
We are supporting growth and employment by easing the requirements on exporters
and importers to gain access to cheap finance under our existing facilities.
SBP has a strategic objective to support exports for sustained improvement in
Pakistan's balance of payments and growth. To this end SBP provides refinance to
banks to provide cheap credit at interest rates that vary between 3 to 6 percent to
exporters for working capital and new projects under Export Finance Schemes (EFS)
and Long Term Financing Facility (LTFF) schemes. The total subsidized credit to
exporters outstanding under both these schemes is currently approximately Rs. 660
billion. Due to the COVID-19 pandemic Pakistan's exporters are facing declining
demand in overseas markets and problems in executing existing orders. To support
exporters in these circumstances and to prevent current liquidity problems from
turning into solvency problems amongst exporters, SBP has announced following
several measures today.
Relaxation in matching amount.
Availing cheaper credit under EFS is linked with the export performance. Currently,
exporters are required to export twice the amount of borrowed funds. In case of
failure in meeting the requirement penalties are imposed and the credit limit for the
next year is also reduced accordingly. SBP has reduced the performance requirement
from twice to one-and-a-half times that will be effective for the current year as well
as for FY21.
Extension in time period to meet performance requirements.
Exporters were required to show performance under the EFS schemes by end-June
2020. This period has been extended by 6 months to end Dec. 2020. Since the
additional period will also be counted towards setting new limits, this will help the
exporters in availing higher limits for FY21.
Extension in time period to ship goods
Exporters availing the subsidized credit schemes are required to ship their goods
within 6 months of availing credit under EFS. In case of failure, penalties are
imposed. This period has been extended from six to twelve months. Therefore,
exporters will not be liable to pay penalties due to breach of this condition during
January to June 2020.
Relaxation in conditions for Long Term Financing Facility.
Exporters who want to avail credit under Long Term Financing Facility (LTFF) are
required to have exports worth 50 percent, or USD 5 million, of the total sales to
become eligible. This limit has been reduced to 40 percent or USD4 million for all
the borrowings under LTTF during the period January 01, 2020 to September 30,
2020. Moreover, under the requirement of annual projected exports performance for
four years to avail LTFF for new or BMR projects has been extended by another one
year. Now the projected exports performance will be measured in 5 years.
i. Facilitating New Investment
We are supporting growth and employment by providing subsidized credit for new
investments across all sectors of the economy.
SBP allows financing for BMR and expansion under its Temporary Economic Relief
Facility (TERF)
On 8 May, 2020, SBP took this measure to provide further stimulus to the economy
in the context of COVID-19's impact on the economy, to support investment in the
country for modernizing or expanding manufacturing / production units, and in
response from feedback from stakeholders.
While allowing BMR and expansion of existing projects, SBP has allowed financing
for purchase of new imported and locally manufactured plant and machinery against
foreign LC and inland LC. The funding under the facility cannot be used for
procurement of second-hand machinery, land or carrying out civil works. Further,
SBP has also introduced additional internal and external checks and controls to
ensure proper utilization of funds.
j. Provision of disinfected currency notes by banks
We are ensuring that sufficient fresh or disinfected cash is supplied to banks and
additional measures are being adopted to safeguard those directly involved in cash
management and operations.
In addition to the precautionary measures, social distancing SOPs/ guidelines
already issued by the GOP/ WHO; banks are advised to mandatorily comply with the
following operational guidelines, with immediate effect:
 The commercial bank/CIT interested in deposit/withdrawal of cash from SBP
BSC shall coordinate with respective SBP BSC field office(s) and seek the time
to visit the office for the purpose. The bank/CIT will be allowed access in the
SBP BSC premises only at the time allocated to them.

 Commercial bank/CIT shall ensure minimum/efficient deployment of staff for

cash deposit/ withdrawal from SBP BSC Offices, in order to mitigate spread of
the COVID-19 virus.

 Wearing of face masks, latex gloves is mandatory for bank representatives /

CIT staff entering SBP BSC premises. Similarly, while entering the Bank’s
 premises temperature screening of all such visitors shall be carried
out by SBPs’ security officials.

 Commercial bank representatives / CIT staff exhibiting symptom(s) including

but not limited to coughing, sneezing, fever etc.; shall not be engaged in cash
handling/storage/transportation. While screening at SBP BSC, if any of the
bank /CIT staff exhibits any of the aforementioned symptoms, such
individuals will not be allowed to enter SBP BSC office(s).

 Commercial bank representatives / CIT staff to ensure compliance of all

preventive measures related to social distancing including guidelines issued
by the Government of Pakistan and WHO, while present in SBP BSC
premises.

 It should be ensured that banknote deposits (all denom) are shrink-wrapped

in accordance with the Banknote Packing Instructions, as the same shall be
disinfected before deposit in SBP BSC vault.

 Furthermore, commercial banks/CITs shall adopt similar practices /

precautionary measures during interbank/intra-bank cash dealings.

 Commercial banks/CIT companies are encouraged to facilitate testing of all

employees suspected of contracting COVID-19 to present the image of a
socially responsible institution.

k. Extension in Deadline for Applications

SBP has extended the deadline for submission of applications against several
positions till May 8, 2020.
The deadline has been extended for positions advertised on March 1, 2020, March 8,
2020, March 15, 2020 and March 22, 2020. Other terms and conditions will remain
the same.

2. SECP ( Securities and Exchange Commission of Pakistan)

Challenges & Mitigations:
i. Extension in Time for Renewal of Licenses due to COVID-19
ii. Relief to companies entities
iii. Facilitation for Insurance Policyholders through Extension in
Coverage of Motor Insurance Policies
iv. Regulatory Relief to dilute impact of COVID-19
v. Reduced Working Hours
vi. Facility of Work From Home
Conclusion:
In conclusion, one can see that the regulators of Pakistan are by and large passive and
subservient to political and vested interests' influence. This is the biggest ill which is
causing a massive dent on the nation's economy, social fabric, political dynamics,
country's strategic and defence interests and the interest of the people of Pakistan. To
move on as a nation this segment needs to be fixed and fixed fast.