The State Bank of Pakistan (SBP) on Monday allowed banks to issue guarantees on behalf of Pakistani firms and companies against the back-to-back / counter–guarantees of banks/development financial institutions (DFIs) rated at least A or equivalent by a credit rating agency on approved panel of the central bank. The SBP amended prudential regulations for corporate and commercial banking and decided that banks/DFIs can issue guarantees on behalf of Pakistani firms and companies functioning in Pakistan against the back to back/counter-guarantees of banks/DFIs rated at least ‘A’ or equivalent by a credit rating agency on the approved panel of State Bank of Pakistan. Besides, the counter-guarantee of bank/DFI situated in a foreign country is also acceptable if it has the rating of at least ‘A’ or equivalent on global or National Rating scale by Standard & Poor, Moody’s, Fitch, Japan Credit Rating Agency (JCRA) or a local credit rating agency of the respective country provided the guarantee issuing bank in Pakistan is comfortable with and accepts the counter -guarantee of such foreign bank. Moreover, subject to the following conditions and limits, banks/DFIs can issue guarantee against the back-to-back/counter guarantee of an unrated, or rated below ‘A’, bank/DFI that is situated in a foreign country: First, the aggregate amount of all such guarantees at any point in time should not exceed 10% of the bank’s/DFI’s own equity as disclosed in the latest audited financial statements; second, the banks/DFIs will have a board of directors (BoD) approved policy having internal limits for acceptance of such counter guarantees based on, inter alia, their own risk appetite and relevant risk factors. The policy may also set more conservative limits than as prescribed in para (a) above. There shall also be instituted a mechanism to monitor such exposures and limits.