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SBP issues clarification on surplus/deficit revaluation

KARACHI (August 05 2004): The State Bank on Wednesday has issued clarification about revaluation of assets and their classification. Some banks had approached the State Bank seeking clarifications relating to the implementation of the related circular dealing with revaluation surplus/deficit. All such queries have been reviewed, said a SBP circular.

The earlier circular issued on July 13 will be effective from the date of its issuance. Prior to the date of issuance of this circular, the instructions contained in BSD Circular No 20 dated August 4, 2000 will be followed.

The banks will classify their investments into three categories ie Held for Trading; Available for Sale; and Held to Maturity.

However, investments in subsidiaries and associates shall be reported separately in accordance with International Accounting Standards as applicable in Pakistan and shall not be subject to mark to market.

First-time classification of securities into 'Held for Trading', 'Available for Sale' or 'Held to Maturity' will be as of the effective date of the above referred Circular, and any unrealised mark to market surplus/deficit existing in the books in respect of 'Held for Trading' securities only will be taken to Profit and Loss Account.

Banks can use investments held in any of the three categories as a collateral under Repo/Reverse repo transaction.

However, in these transactions the securities are subject to a repurchase / resale commitment, and therefore the risk of loss due to change in price will remain with the owner.

Consequently, a security which is the subject of a repurchase or security lending agreement will be treated as if it were still owned by the lender and will be marked to market by the lending bank (owner) and any surplus /deficit shall be treated according to its category of classification.

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