KARACHI, May 14: The State Bank of Pakistan on Monday doubled the limit for issuance of unsecured guarantees by banks and DFIs.

The central bank stated that amendments had been made to the Prudential Regulations for Corporate and Commercial Banking to provide flexibility to the banks and DFIs.

According to the circular the existing limit of $250,000 for issuance of unsecured guarantees by the banks and DFIs in Pakistan against the counter-guarantees of the banks situated in foreign countries (not meeting the prescribed rating of at least ‘A’), has been enhanced to US$500,000, if tenor of such guarantees is up to one year.

Moreover, for the back-to-back or counter-guarantee issuing banks situated in foreign countries, National Scale Rating of at least ‘A’ or equivalent will also be acceptable, provided the guarantee issuing bank in Pakistan is comfortable with it.

The circular said the requirement of security can also be waived by the banks or DFIs in case of guarantees issued to Pakistani firms functioning in Pakistan against the counter guarantees of branches of guarantee issuing bank.

It further says the guarantees would be acceptable if banks or DFIs rated at least ‘A’ or equivalent by a credit rating agency on the approved panel of State Bank of Pakistan or Standard & Poor, Moody’s, Fitch-Ibca or Japan Credit Rating Agency (JCRA).

Besides, in case the counter guarantee issuing bank is situated in a foreign country, National Scale Rating of at least ‘A’ or equivalent (or the rating of at least ‘A’ or equivalent by a local credit rating agency of the respective country) will also be acceptable, provided the guarantee issuing bank in Pakistan is comfortable with and accepts the counter guarantee of such foreign bank.However, the prescribed rating requirement for banks situated in foreign countries may be relaxed for transaction amount up to US$250,000 irrespective of tenor and up to US$500,000 if tenor is up to one year, subject to internal credit controls and approvals of the concerned bank or DFI in Pakistan.

For transaction amounts greater than US$250,000 having tenor of more than one year and for transaction amounts greater than US$500,000 irrespective of tenor, banks and DFIs may approach the State Bank for specific approvals or exemption, on case by case basis, said the SBP circular.