Banks seek SBP waivers after signing PKR 1.275 trillion circular debt deal

Leading Pakistani banks are looking to the State Bank of Pakistan (SBP) for key regulatory waivers and exemptions after signing a term sheet to finance the clearance of PKR 1.275 trillion in circular debt, sources familiar with the matter told Nukta on Thursday.

The deal, involving 18 commercial banks and the state-run Central Power Purchasing Agency (CPPA), marks the largest financing agreement in Pakistan’s history.

The six-year arrangement aims to inject liquidity into the country’s troubled power sector, but participating banks say final disbursements hinge on the SBP addressing several outstanding concerns.

Sources said the banks are urging the central bank to classify the entire facility as sovereign debt. If approved, the move would allow banks to benefit from:

• A zero-risk weight, resulting in no impact on capital adequacy ratio (CAR)
• Exemption from per-party exposure limits
• No provisioning requirement in the event of payment delays, and
• No allowance for Expected Credit Loss (ECL)

However, the SBP has already indicated that it may not grant exemption for fair value losses, despite requests from banks. To ease the financial impact, lenders are seeking approval to stagger any such losses over the six-year term of the deal — a model previously used in the Pakistan International Airlines (PIA) restructuring.

In addition to these points, sources said there are a few other outstanding issues that banks want resolved before the funds are disbursed.

The financing facility will offer a return of roughly 10 to 11 percent, pegged at the Karachi Interbank Offered Rate (KIBOR) minus 0.90 percent.