KARACHI, Feb 11: The State Bank of Pakistan has tightened rules for extending credits to borrowers and has announced strict measures to streamline the consumer financing which has been facing difficult situation because of increasing non-performing loans in this sector.

The State Bank made amendments to Prudential Regulations on Wednesday and enhanced risk management by involving chartered accountants and chartered accountant firms to check the small and big corporate borrowers.

“Banks and DFIs will obtain a copy of financial statements duly audited by a practicing Chartered Accountant, relating to the business of every borrower which is a limited company or where the exposure of a bank or DFI exceeds Rs10 million, for analysis and record,” said an SBP circular.

It said the banks and DFIs may also accept a copy of financial statements duly audited or certified by a practicing Cost and Management Accountant in case of a borrower other than a public company or a private company which is a subsidiary of a public company.

However, if the borrower is a public limited company and exposure exceeds Rs500 million, banks and DFIs should obtain the financial statements duly audited by a firm of Chartered Accountants which has received a satisfactory rating under the Quality Control Review (QCR) Programme of the Institute of Chartered Accountants of Pakistan. Subsequently, if the firm’s rating is downgraded in QCR programme, then the financial statements of such borrowers are audited in the subsequent year by a firm having satisfactory rating under the QCR.

“Banks or DFIs may waive the requirement of obtaining copy of financial statements when the exposure net of liquid assets does not exceed the limit of Rs10 million,” said the circular.

Further, financial statements signed by the borrower will suffice where the exposure is fully secured by liquid assets.

This amendment will be applicable after December 31, 2009. Banks and DFIs were advised to communicate the contents of this circular to all of their existing borrowers which are public limited companies and their limits are exceeding Rs500 million so that they will submit the financial statements in accordance with the instructions after December 31, 2009.

Another circular also issued by the State Bank on Wednesday announced amendments to the Prudential Regulations for enhancing the restriction regarding the credit under the consumer financing.

“At the time of granting facility under various modes of consumer financing, banks and DFIs will obtain a written declaration from the borrower divulging details of various facilities already obtained from other banks and financial institutions,” said the circular.

Before allowing any facility, the banks and DFIs will obtain a consumer credit report from the Credit Information Bureau of State Bank or from any consumer Credit Information Bureau of which they are a member, said the circular.

While determining the credit worthiness and repayment capacity of the prospective borrower the banks and DFIs will ensure that the total monthly amortisation payments of consumer loans should not exceed 50 per cent of the net disposable income of the prospective borrower.

The State Bank said a Bank or DFI may issue credit card to one person with a maximum unsecured limit not exceeding Rs1,000,000, subject to mandatory credit check and prescribed debt burden and condition that total unsecured credit card limits availed by that person from all banks and DFIs does not exceed Rs1,000,000.

According to another amendment, banks and DFIs may extend mortgage loans for housing up to any tenure defined in the bank’s or DFI’s duly approved credit policy and keeping in view the maturities profile of their assets and liabilities.