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Habib Bank links KIBOR with SBP rate

KARACHI: The Habib Bank Ltd (HBL) has become the first commercial bank which has linked its Karachi Inter-Bank Offered Rate (KIBOR)-related financing with State Bank of Pakistan (SBP) displayed rate of KIBOR.

Bank sources said the HBL had standarised the KIBOR by linking it to the daily rate displayed by State Bank of Pakistan (SBP) on its website.

The KIBOR was launched in 2001 and in 2004 its scope and operation was expanded. Since its start, almost every bank of the country preferred to devise its own mechanism for determination of KIBOR and it evoked serious reaction from private sector.

The SBP displays both bid and offer rates daily on its website, but does not release the figures or number of contracts done under different periods. It creates rumours in the capital markets and does not help stabilise interest rate structure of the national economy.

Banking experts are of the opinion that displaying the contracted amount will help in greater transparency in the banking sector of the country.

They said one of the main reasons of linking KIBOR rate with SBP displayed rate by the HBL was to ensure transparency in handling the cases of KIBOR-related financing and automatically withdraw discretionary powers of executives while sanctioning KIBOR-related financing.

The sources said the HBL was the first commercial bank, which had linked its KIBOR financing with the SBP displayed rate of KIBOR.

According to official instructions issued by the management of HBL to its field staff, following procedure will be adopted for the sanctioning of KIBOR-related financing.

1. KIBOR rate would be set at the date of disbursement of the facility taking the rate of last working day. The rates may be obtained from HBL treasury desk for the sanctioned tenor or can be taken from SBP website.

2. The rate would be applied to the sanctioned tenor. In case the tenor is less than a quarter, mark-up would be calculated at the end of each tenor and recovered from borrower at the beginning of next tenor.

3. For KIBOR exceeding one quarter that is three months, the mark-up recovery from borrower will be made on quarterly basis at the beginning of each quarter for the period ending last quarter.

4. Since the end of tenor would trigger re-set date, the branch will obtain the KIBOR for the originally agreed tenor from website of SBP.

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