Cabinet gives ministry the nod to ratify Protocol

MUSHTAQ GHUMMAN

ISLAMABAD: Commerce Ministry has reportedly obtained a formal nod from the Cabinet for ratification of protocol on banking services to the agreement on trade and services between China and Pakistan, well informed sources told Business Recorder.

Trade in services agreement between Pakistan and China was signed on February 21, 2009 and is operational since October 2009. Under the agreement, Pakistan has provided market access to China in 11 sections and 107 sub-sectors while China has reciprocated by opening 11 sectors and 133 sub-sectors.

During the 3rd meeting of 2nd phase of China –Pakistan Free Trade Agreement (CPFTA) held on January 6-8 2015 at Islamabad, the two countries agreed to further deepen cooperation in services and investment including concessions in banking services through an additional protocol to the existing agreement. Both sides finalised the draft of the protocol in bilateral meets held on March 30 to April 1, 2015 in Beijing and reached the understanding to sign it during the high-level visit from China to Pakistan on April 20-21, 2015.

Currently, there is a requirement of having minimum $ 20 billion of assets at the end of year preceding the application for any bank to establish a branch in China. However, the protocol envisages reducing the threshold of $ 20 billion to $ 15 billion for Pakistani banks. The concessions would make it possible for Pakistani banks particularly National Bank of Pakistan (NBP) and Habib Bank Limited (HBL) to start operations in China and to engage in RMB based business.

On Pakistani side, the Chinese banks operating in Pakistan are to be exempted from “Large Exposure Limit” and SBP’s ancillary approval. These reciprocal actions are likely to go a long way in facilitating China-Pakistan Economic Corridor related transactions. The protocol was endorsed by the Ministry of Finance, Ministry of Foreign Affairs and State Bank of Pakistan (SBP) on April 20, 2015 during the visit of the Chinese President to Pakistan. Prime Minister Nawaz Sharif due to paucity of time approved the protocol vide rule( 16)(2) of the Rules of Business 1973 and directed to subsequently place the protocol before the cabinet, as required under rule 16(1) h, of the Rules of Business 1973.

According to the protocol, in case the exposure is up to three times of per party limit prescribed under Prudential Regulations, no permission will be required from SBP. However, a letter of comfort in a format acceptable to SBP from the head office of the Chinese bank address to their Pakistan branch and copied SBP will be a perquisite.

In case the exposure exceeds three times of the per party prescribed limit, SBP’s prior approval will be required on a case to case basis and project viability will be reviewed by the SBP. A letter of comfort is also required from the head office of the Chinese bank.

Large Exposure Limited under the Prudential Regulations (PR-1) as amended from time to time will be exempted.

The concessions for Chinese banks will be admissible to all Chinese banks minimum rated “A” by Moody’s / Standards & Poor’s only and for project specific to Pak-China Economic Corridor.

Where Pakistani branch of a Chinese bank acts only as disbursing branch and all risks of the exposure are assumed by its head office in China (or other office outside Pakistan) along with due confirmation by the head office in writing and provision of matching funds from abroad, such exposure will be exempted from the calculation of exposure of the branch. However, such financing/ disbursement needs to be compliant with all local and international laws including foreign exchange regulations of Pakistan and not violative of any UN or other international sanctions. Further Chinese banks’ branches will provide all required information about such loans to SBP.

The sources said Commerce Ministry submitted the protocol to the cabinet in its last meeting.