UNIVERSITY OF EDUCATION

BANK ROAD CAMPUS

FINAL PROJECT
“PRUDENTIAL REGULATIONS issued by

SBP”

Group Members
Iqra Naeem
Sara Malik
Nuvaira Imran
Bakhtawar Raza
Areej Waheed
Zainab Abbas
Submitted to: Mam Lala Rukh

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Contents to be covered:
 Prudential Regulations issued by SBP:
 Introduction
 Preface
 Summarized information about prudential regulations
 Frequently asked questions available at SBP website.

Prudential Regulations Issued by SBP

 Prudential Regulations for Infrastructure Project Finance (IPF)

 Prudential Regulations for SME Financing, effective from December 31 2017
 Prudential Regulations for Agriculture Financing
 Prudential Regulations for Corporate/ Commercial Banking (Revised till January 2015)
 Prudential Regulations for Consumer Financing (as of August 03, 2016)
 Prudential regulations for Micro Finance Banks
 Prudential Regulations for Housing Finance

Introduction

Prudential Regulation: Prudential regulation is a type of financial regulation that requires

financial firms to control risks and hold adequate capital as defined by capital requirements,
liquidity requirements, by the imposition of concentration risk (or large exposures) limits, and
by related reporting and public disclosure requirements and supervisory controls and
processes.
PR issued by SBP: Prudential Regulations have been issued by State Bank of Pakistan to put in
place a prudent regulatory framework for ensuring safety and soundness of the financial
system besides protecting the interests of users of financial services.
Purpose: The purpose of prudential regulation and supervision is to ensure that financial
institutions operating within the financial system are inherently safe and sound, from a financial
perspective.

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 Preface
Infrastructure is the backbone for economic growth and development in a country. Availability
of infrastructure improves investment climate leading to job creation, export competitiveness
and uplifting of living standards. Government of Pakistan is making all out efforts to provide
state of the art infrastructure facilities across the country. Similarly, a number of highways and
motorways are being built. In order to promote infrastructure financing in Pakistan, the SBP is
now issuing Prudential Regulations (PRs) for Infrastructure Project Financing. These regulations
have been developed on the basis of broad based internal as well as external stakeholders’
consultations.
These Prudential Regulations place emphasis on important features of infrastructure project
finance which will facilitate the banks and DFIs to assess the cash flow generating capacity of
the projects like the requirement of technical feasibility, comprehensive risk assessment,
project insurance, technical monitoring of the project during loan tenure and requirement of
supply and off-take agreements.
SME sector contributes significantly towards national GDP, employment generation and export
earnings. The potential for this sector to contribute to the economic development objectives of
Pakistan, in areas like creating jobs, increasing incomes, improving competitiveness, boosting
exports. Banks & DFIs had tilt towards larger-size medium enterprises as compared to small
enterprises in their banking business. The Prudential Regulations for Corporate/ Commercial
Banking may be refer to for areas concerning Corporate Governance and Operations aspects as
well as Anti-Money Laundering and Combating the Financing of Terrorism Regulations issued by
BP & RD.
Mainstreaming agriculture and rural finance sector in the country’s financial system as a
commercially viable and attractive business line through sector friendly policies has always
been a top priority at State Bank of Pakistan. In line with this mission, SBP earlier issued
detailed Prudential Regulations (PRs) for Agriculture Financing in 2005. The revised Prudential
Regulations for Agricultural Financing covers; (i) General Regulations related to comprehensive
agri. financing policy, exposure limits, secured/unsecured financing limits, guarantees,
classification of loans, and other general requirements; and (ii) Specific Regulations for farm
credit for input, farm development finance, loans for purchase of machinery/ equipment,
livestock financing, and corporate farming. The Prudential Regulations for Agricultural Financing
do not supersede other directives issued by State Bank of Pakistan in respect of areas not
covered here.
In order to align the regulatory framework to changing business environment and the best
international practices, the State Bank of Pakistan, in consultation with stakeholders, has
revised the Prudential Regulations on Risk Management, Corporate Governance and Operations
for Corporate & Commercial Banking. The revised regulations aim to assist banks/DFIs in better
addressing their unique risk factors and dynamic environment by giving more discretion in

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business decisions. These regulations also describe minimum prudential benchmarks in critical
risk areas to balance the considerations of financial stability of banks/DFIs vis-à-vis diversity and
innovation.
The Prudential Regulations for Consumer Financing covers Risk Management (R), and
Operations (O) aspects. However, in case of international operations, the Prudential
Regulations of host country shall prevail. The Prudential Regulations for Consumer Financing do
not supersede other instructions issued by State Bank of Pakistan in respect of areas not
covered here. Any violation or circumvention of these regulations shall render the
bank/DFI/officer(s) concerned liable for penalties under the Banking Companies Ordinance,
1962. Cognizant of peculiar dynamics and evolution of microfinance sector, SBP maintains a
‘proportional’ regulatory approach to promote innovation and stability. The underlying
principle has always been to keep balance between inclusion and prudence. Specifically,
prudence relates to i) stability (Capital / managing credit / operations / liquidity risks) ii)
financial integrity (AML/CFT) and iii) consumer protection.
Housing and construction sector is an important driver of economic growth, as it employs large
labor force worldwide. It also has significant implications for the development of the country’s
financial markets, and it influences (and is influenced by) fiscal policy. Presently, State Bank of
Pakistan is working on few initiatives to create an enabling environment for banks/DFIs to
increase outreach of housing finance. It involves relatively greater sums of financing compared
to other consumer finance products and is extended for longer period of time. Keeping in view
the peculiar nature of housing finance, and to facilitate banks/DFIs in enhancing housing
finance portfolio, SBP in consultation with different stakeholders, has issued separate set of
Prudential Regulations specifically for Housing Finance.

Summarized information about PR’s

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 Frequently asked Questions

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