KARACHI, Dec 1: The State Bank on Saturday announced the criteria for setting up Islamic commercial banks by the private sector that requires such banks to be listed on the stock exchange.
Under a supreme court verdict, Pakistan is expected to transform the present financial system into an Islamic one before July next year.
The State Bank said those willing to set up Islamic commercial bank should apply to its banking supervision department.
The following will be the criteria for setting up a scheduled Islamic commercial bank.
(1) The proposed bank would be a public limited company and would be listed on the Stock Exchange. A minimum of 50 per cent of shares shall be offered to the general public.
(2) All financial transactions will be in accordance with the injunctions of Sharia.
(3) The application shall indicate the modes of finance proposed to be used for raising resources and extending financial assistance.
(4) The applicant will also indicate expertise and other facilities available with them for ensuring compliance of their banking business with Sharia.
(5) To be able to commence business, the bank shall have a minimum paid up capital of Rs 1 billion. The bank shall also maintain at all times minimum capital adequacy ratio of 8 per cent based on risk weighted assets.
(6) At least 15 per cent of the total paid up capital shall be subscribed personally by the sponsors directors. The number of sponsor directors shall not be less than seven. The amount proposed to be subscribed by each sponsor director is required to be indicated.
(7) Sponsor directors should have to declare personal net worth which should not be less than the amount to be subscribed by them personally. The net worth of each sponsor director is required to be indicated and supported by a duly authenticated copy of the latest wealth assessment filed with the taxation department. In case of sponsor directors resident in countries where filing of wealth statement is not a requirement of law, a certificate of personal net worth and general reputation issued by an international bank of repute would be acceptable. This facility would also be available to applicants who have recently returned to Pakistan.
(8) Sponsor director(s) subscribing more than 5 per cent of the total paid up capital shall clearly indicate their request separately. However, such request should be commensurate with his net worth.
(9) Sponsor directors shall not dispose of their shares in any manner whatsoever for a minimum period of three years and thereafter only with the specific written approval of the State Bank.
(10) Foreign investment by sponsor directors shall be permissible only on the basis of capital being non-repatriable but dividends will be remittable abroad.
(11) Application shall stand disqualified if any of the sponsors and/or directors or their spouses or firms:
(a) has been convicted by a court of law in Pakistan or abroad for a criminal offence.
(b) has been associated with any illegal activity especially in banking business, deposit taking, financial dealings and other businesses;
(c) has failed to meet his or her obligations to banks and other financial institutions. They shall furnish names of the banks/DFIs along with the names of the branches with which they have had dealings. Bank reports are also required to be submitted;
(d) has defaulted in payment of taxes. They shall indicate their national tax numbers;
(e) is or has been associated as director/chief executive with the corporate bodies whose corporate and tax record including (those of) customs duties, central excise and sales tax has been unsatisfactory. They shall name the corporate bodies, their bankers and disclose their tax numbers and dividend record. Those not so associated with corporate bodies would be required to indicate their occupation/profession/trade and highlight their achievements;
(f) in the opinion of the sanctioning authority enjoys adverse reputation regarding integrity and performance.
(12) Neither one person can be a director in more than one financial institution nor one group should have more than one bank.
(13) Not more than 25 per cent of the sponsor directors shall be from the same family as defined in sector 5(ff) of the Banking Companies Ordinance.
(14) The chief executive would be a professional with no adverse information regarding his integrity and performance and shall require prior clearance of the State Bank of Pakistan.
The SBP press release says the applicant will also submit the following documents along with the request to set up Islamic commercial bank:
(i) Feasibility study for setting up of the bank including organization structure and the name of the proposed chief executive.
(ii) Short term and long term business plan.
(iii) Risk management guidelines, plans for internal control system and scale of authority.
(iv) Working system and procedures for business operations.
(v) List of companies/firms and their bankers in which sponsor directors and their family members (as defined in the Banking Companies Ordinance) are interested as directors, chief executive, partner, proprietor, or major shareholders holding 5 per cent or more shares.
(vi) Constitution and names of the members of the Sharia board along with their resume.
The press release says that the bank which may be permitted to be established shall be subject to the prevalent banking and other laws, rules and directives issued by SBP from time to time.
It says that the bank must commence operation within six months from the date of permission.
The release says the applicant shall have to deposit Rs1 million along with the application as non-refundable processing fee. It says that incomplete application shall be returned and processing fee retained. Re-submission would attract fresh fee.