https://ummran.com/investment-banking/

Investment Banking

WHAT IS INVESTMENT BANKING?

Investment Banks are Non-Banking Financial companies (NBFC) and are regulated by Securities & Exchange Commission of Pakistan (SECP).

An NBFC is a financial institution which does not have banking license, but do provides banking services. These institutions do not have sufficient right to take up deposits from public. However, all the operations of this body are still covered under banking regulations.

Investment Banking is a specialized sector of banking related to the production of capital for other businesses and corporations. Investment banking deals in providing assistance to issuers regarding placement of stocks. Apart from that an investment bank can undertake the following activities:

  • Extend finance facilities
  • Project Financing
  • Eligible financier for capital markets
  • Brokerage services without engaging in deposit raising activity
  • Portfolio Management – Discretionary & Non-Discretionary basis
  • Advisory Services including financial restructuring, mergers, professional analysis to investors for securities, assist in obtaining various types of finances including placement of debt and equity etc.
  • Issuance of guarantees and counter-guarantees.
  • Act as Underwriter
  • Provide custodial/ trustee services subject to fulfillment of certain criteria.

Regulation 29 of the Non-Banking Finance Companies and Notified Entities Regulations 2008 details the activities performed by an investment bank.

CERTIFICATES OF INVESTMENTS/DEPOSITS

Non-banking Financial Company (NBFCs) with license to undertake investment banking services are permitted to raise deposits in form of “Certificate of Deposits”. However, they are not allowed to open checking deposit accounts and issue cheque books.

In order to be eligible to raise deposits, an investment bank must be compliant with the following main conditions:

  1. The NBFC is listed on a stock exchange
  2. The NBFC has been, as per the audited accounts, making profits for a period of at least two years.
  3. the operations of the NBFC and the conduct of its directors with respect to the NBFC has been in accordance with law.
  4. The NBFC has been assigned a credit rating of minimum investment grade i.e. BBB- from a credit rating agency.

A NBFC compliant with the above conditions may submit an application to SECP for seeking permission to raise deposits. A NBFC after obtaining permission may raise deposits. A NBFC can only raise deposits from individuals up to three times of its equity.

While making a deposit with a NBFC, the general public should at the minimum ensure that;

  1. The NBFC has a valid license from SECP to do business in Pakistan.
  2. The NBFC has valid permission from SECP to raise deposits.
  3. The NBFC has minimum investment grade rating from any of the following two rating agencies:
    • Pakistan Credit Rating Agency Limited (PACRA)
    • JCR-VIS Credit Rating Company Limited (JCR-VIS)

The credit rating shall be updated at least once every year.

  1. The past track record of the NBFC regarding repayment to depositors.
  2. The profitability/dividend distribution history of the NBFC, which can be assessed through financial statements.
  3. The repute of the NBFC in the industry, the key management personnel of the NBFC and their general repute in the industry.

A person investing in the deposit schemes shall note that the deposits raised by an NBFC are subjected to various risks especially credit risk. The deposits of an NBFC are unsecured and are lower in rank to secured creditors of the NBFC. As per law, no preferential treatment is available to depositors of a NBFC in case of its liquidation.

KEY POINTS FOR INVESTMENT BANKING CLIENTS

Clients interested in using the services of an investment bank must assure:

  1. The company is registered with the SECP.
  2. The company is licensed to perform investment finance┬áservices.
  3. The company has developed proper systems and controls with appropriate level of documentation for dealing with clients.
  4. Proper documentary evidence in the form of invoice/certificate/receipt is issued for every transaction with clients.
  5. All transactions valuing more than Rs. 50,000 are made through cheques.
  6. The company has its official web site which is updated regularly.
  7. The persons acting on behalf of the company are duly authorized representatives of the company.
  8. The company is not performing any unlawful business.
  9. All the product features, terms and conditions should be thoroughly examined before executing any transaction with the company.

All claims made by the company regarding its profitability, performance, repayment/return history should be backed by relevant documentary evidence such as its financial statements, credit rating reports etc.

FAQS RELATED TO INVESTMENT BANKING

  1. From where can I get basic/detailed information about a Leasing Company/ Investment Bank/ Housing Finance Company?

    The information can be obtained from the following sources: The credit rating reports can be obtained from the websites of the credit rating companies. The following are the addresses:  
    1. Securities & Exchange Commission of Pakistan (SECP)
    2. Published Financial Statements of the Company
    3. Official web site of the company
    4. Relevant Company Registration Office (CROs) in which the company is registered
    5. Credit rating reports issued by the credit rating companies
    6. NBFI & Modaraba Association of Pakistan
       
    The credit rating reports can be obtained from the websites of the credit rating companies. The following are the addresses:
    1. http://www.jcrvis.com.pk
    2. http://www.pacra.com
       
  2. From where can I get financial statements of a Leasing Company/ Investment Bank/ Housing Finance Company?
    The published financial statements can be obtained from following sources:
    1. Official website of the company
    2. Office of the company
    3. Relevant Stock Exchange (s) where the company is listed
    4. NBFI & Modaraba Association of Pakistan
       
  3. What is the location of CROs:?
    The CROs are situated in the following cities:The complete address of the CROs can be obtained from the official web site of the Securities and Exchange Commission of Pakistan.
    1. Islamabad
    2. Lahore
    3. Karachi
    4. Quetta
    5. Peshawar
    6. Faisalabad
    7. Multan
    8. Sukkur
       
  4. How I can know that the Leasing Company/ Investment Bank/ Housing Finance Company have valid permission to issue certificate of investment/deposit?
    The company may be asked to show the permission granted by the Securities and Exchange Commission of Pakistan or such information can be obtained by contacting Securities and Exchange Commission of Pakistan or through its website.
     
  5. Who should be contacted to check the registration status of the company? 
    In order to check whether a company is registered or not, the head office of the Securities and Exchange Commission of Pakistan or any of its CROs can be contacted.
     
  6. What are the important laws dealing with leasing companies and from where can obtain copy of these laws?
     
    1. Companies Ordinance, 1984
    2. Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003
    3. Non-Banking Finance Companies and Notified Entities Regulations, 2008
       
    Any other SROs and circulars issued by the Securities and Exchange Commission of Pakistan regarding Leasing Company/ Investment Bank/ Housing Finance Company. All the above laws, SROs and circulars can be obtained from the official website of the Securities and Exchange Commission of Pakistan at the following web address:http://www.secp.gov.pk/Services/laws_policies.asp
  7. What are the important web links which can provide information about a Leasing Company/ Investment Bank/ Housing Finance Company?
    1. NBFI & Modaraba Association of Pakistan – http://nbfi-modaraba.com.pk
    2. Securities & Exchange Commission of Pakistan – http://www.secp.gov.pk
    3. Karachi Stock Exchange – http://www.kse.com.pk
    4. Lahore Stock Exchange Limited – http://www.lahorestock.com
    5. Islamabad Stock Exchange Limited  – http://www.ise.com.pk
       
    Apart from above, information can be obtained about general state of economy and financial sector from the following sources:
    1. State Bank of Pakistan – http://www.sbp.org.pk
    2. Federal Board of Revenue – http://www.fbr.gov.pk
    3. Pakistan Bureau of Statistics – http://www.pbs.gov.pk
       
  8. In case of any dispute with the company, who should be contacted to launch a complaint against the company?
    The complaints can be sent to any of the Company Registration Offices of the Securities and Exchange Commission of Pakistan or to the Specialized Companies Division’s Karachi and Islamabad offices.
     
  9. What are the important things which should be kept in mind while taking any loan or making any deposit with the NBFC?

    For Taking Loan
  1. What are the loan application processing charges and any other charges for processing the loan application.
  2. The borrower should at the minimum obtain the following information once the loan is approved:
    1. The amount of loan,
    2. date of the disbursement,
    3. the date of its maturity,
    4. repayment schedule i.e. the amount of installment along with its break-up (principal, mark-up, other charges i.e insurance, collection, etc)
    5. the nature of the security, if any,
    6. the rate of mark-up to be charged,
    7. whether the mark-up is fixed or floating. In case of floating, the frequency of its revision.
    8. In case of any delayed payment; the penalty applicable on late payments.
    9. Prepayment penalties, if any, in case of early payment of loans
       
  3. The name of the insurance company with which the asset is insured and the procedure for obtaining insurance claims.
  4. The borrower should keep record of all the payments made to the NBFC. Once the loan is fully repaid, obtain a loan clearance certificate from the NBFC.

    For Making a Deposit
  1. A person investing in the deposit schemes shall note that the deposits raised by a NBFC are subject to various risks especially credit risk. The deposits of a NBFC are unsecured and are lower in rank to secured creditors of the NBFC. As per law, no preferential treatment is available to depositors of a NBFC in case of its liquidation.
  2. Prior to making any deposits, the prospective depositors are advised to conduct their own risk analysis.
  3. The depositor should at the minimum obtain the following information from the NBFC
    1. The amount deposited
    2. The tenure of the deposit
    3. The mode of repayment of the deposit
    4. The frequency of payment of profit.
    5. Whether the rate of profit is fixed or subject to revision. In case it is subject to revision, the frequency of revisions
    6. The terms and conditions subject to which the deposit will be renewed or rolled over.
    7. In case of premature encashment, the amount of monetary penalties, if any, to be paid on early encashment or the period of time, if any, during which no profit or a different rate of profit will be payable.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top