SBP announces new policy for banks overseas branch operations

KARACHI (March 07 2009): For commencement of overseas branch operations by banks, the State Bank of Pakistan (SBP) has set the conditions of minimum 75 domestic branches and maintenance of profit during last three consecutive years.

The SBP on Friday issued new policy for opening of overseas offices and establishment of a subsidiary banking company outside Pakistan.

The policy contains instructions relating to opening/shifting/closing/performance monitoring of overseas offices, and establishment of subsidiary banking company outside Pakistan.

AS PER NEW POLICY, SBP HAS DECIDED TO INCLUDE: (a) Head of overseas operations of a bank at head office level, (b) Country Head/Regional Head (where a region is consisting of more than one foreign countries), (c) CEO/Head of subsidiary banking company outside Pakistan and (d) CEO of Joint Venture (where majority stake is with the bank incorporated in Pakistan & authority to appoint CEO) in the category of Key Executives for assessment of their fitness and propriety under BPRD Circular No 4 dated April 23, 2007.

Accordingly, such appointments will be made in accordance with Fit & Proper Test as prescribed by the central bank and other instructions issued from time to time. Banks/Islamic banks will, however, seek State Banks prior approval for such overseas appointments in the future. Regarding existing heads of such overseas operations, banks are advised to seek State Banks approval regarding their fitness and propriety within two months.

SBP said that new circular regarding oversees branches would supersede instructions as given in section 5.1 of Branch Licensing Policy issued vide BPRD Circular No 15 dated October 12, 2007. SBP has advised banks, Islamic Banks and DFIs to ensure strict compliance with these instructions.

As per new policy, Banks will apply for SBPs in principle approval to open any of the three categories of overseas offices. They will approach SBP for such approval prior to approaching the regulator in the host country. Banks are required to meet the several conditions for seeking SBPs in-principle approval to commence branch operations in the proposed foreign country.

Prior approval of Board of Directors of the applicant bank should be obtained before approaching SBP for opening of overseas branch in the proposed country and the applicant bank must have a network of at least 75 domestic branches. In addition, the applicant bank should have earned profit during the last three consecutive years and detailed information regarding amount of investment/other initial expenditure would be furnished to SBP.

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