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State Bank of Pakistan (SBP) Prudential Regulations, Credit Risk & Banking Operations (Accounting & Finance) Solved Questions & Notes (2026) - Apex Rankers

Higher Education & Professional Technical Tests > Accounting & Finance > State Bank of Pakistan (SBP) Prudential Regulations, Credit Risk & Banking Operations

60 Total Questions
~90 mins Read Time
1 Subject Areas
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Q. 1 Accounting & Corporate Finance
Difficulty: Hard (1 Mark)
Under State Bank of Pakistan (SBP) Prudential Regulations for Corporate/Commercial Banking, what is the standard limit for aggregate clean facility (unsecured financing) to a single borrower?
A
PKR 500,000
B
PKR 2,000,000
✓ Correct
C
PKR 5,000,000
D
PKR 10,000,000
💡 Step-by-Step Explanation & Concept Rationale
Under SBP Prudential Regulations for Corporate/Commercial Banking (Regulation R-1), clean financing facilities without tangible collateral to a single party shall not exceed PKR 2 million in aggregate.
Q. 2 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
According to SBP Prudential Regulations for SME Financing, a Small Enterprise (SE) is defined as an entity with annual sales turnover up to which limit?
A
PKR 150 Million and up to 50 employees
✓ Correct
B
PKR 300 Million and up to 100 employees
C
PKR 500 Million and up to 150 employees
D
PKR 800 Million and up to 250 employees
💡 Step-by-Step Explanation & Concept Rationale
Under SBP SME Prudential Regulations, a Small Enterprise is a business entity having annual sales turnover up to PKR 150 Million and employment strength up to 50 employees (including contractual staff).
Q. 3 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
Under SBP Prudential Regulations for Consumer Financing, what is the maximum permissible Debt Burden Ratio (DBR) for a borrower seeking consumer or personal loan facilities?
A
30% of net disposable income
B
40% of net disposable income
C
50% of net disposable income
✓ Correct
D
65% of net disposable income
💡 Step-by-Step Explanation & Concept Rationale
Under SBP Consumer Financing Regulations, the total monthly repayment installments of all consumer loans shall not exceed 50% of the borrower's net disposable income (DBR <= 50%).
Q. 4 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
In housing finance prudential regulations issued by SBP, what is the standard Maximum Loan-to-Value (LTV) ratio permitted for residential property acquisition?
A
95:05
B
85:15
✓ Correct
C
70:30
D
50:50
💡 Step-by-Step Explanation & Concept Rationale
Under SBP Housing Finance Regulations, the maximum Loan-to-Value (LTV) ratio for purchase or construction of residential property is typically capped at 85:15 (i.e. bank financing maximum 85%).
Q. 5 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
Under SBP Agriculture Financing Regulations, production loans for seasonal crops (such as wheat, rice, cotton) are disbursed on revolving limits for a maximum tenor of:
A
6 Months
B
12 to 18 Months
✓ Correct
C
3 Years
D
5 Years
💡 Step-by-Step Explanation & Concept Rationale
Agricultural production loans are revolving short-term working capital facilities granted for a cycle of 12 to 18 months, covering seed, fertilizer, pesticide, and harvesting expenses.
Q. 6 Accounting & Corporate Finance
Difficulty: Hard (1 Mark)
Which document serves as statutory proof of agricultural land ownership and valuation for mortgaging land under the Agricultural Pass Book System in Pakistan?
A
Form-B
B
Agriculture Pass Book issued by the Revenue Authority under Act 1973
✓ Correct
C
Fard-e-Malkiyat (Khasra Girdawari)
D
Registered Sale Deed without mutation
💡 Step-by-Step Explanation & Concept Rationale
Under the Loans for Agricultural Purposes Act 1973, the Agriculture Pass Book issued by the Sub-Divisional Revenue Officer / Tehsildar creates a statutory charge and serves as primary evidence of title.
Q. 7 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
In credit administration, what is a Disbursement Authorization Certificate (DAC)?
A
A promotional flyer given to retail customers
B
A formal certificate issued by Credit Administration Department (CAD) confirming all legal documents, conditions precedent, and charge creation are perfected before loan drawdown
✓ Correct
C
An approval letter from the Board of Directors for hiring branch staff
D
A tax deduction certificate under Section 153
💡 Step-by-Step Explanation & Concept Rationale
A Disbursement Authorization Certificate (DAC) is the crucial risk-control clearance issued by CAD to branch operations confirming that all sanction terms, security documents, charge registration, and legal vetting have been executed.
Q. 8 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
What is the role of the Credit Approval Authority Booklet (CAAB) in commercial banks like National Bank of Pakistan?
A
It lists branch profit targets and marketing bonuses
B
It establishes delegated financial authorities, credit committee powers, and approval thresholds for different management tiers (Branch Manager, Regional Head, Head Office Committee)
✓ Correct
C
It contains the code of conduct for retail tellers
D
It regulates foreign exchange remittances only
💡 Step-by-Step Explanation & Concept Rationale
CAAB (Credit Approval Authority Booklet) specifies the hierarchy of credit sanctioning limits, defining which executive or committee level has statutory authority to sanction specific exposures.
Q. 9 Accounting & Corporate Finance
Difficulty: Hard (1 Mark)
Under Section 100 of the Companies Act 2017 in Pakistan, within how many days must a company register a mortgage or charge created on its assets with the Securities and Exchange Commission of Pakistan (SECP)?
A
14 Days
B
30 Days
✓ Correct
C
60 Days
D
90 Days
💡 Step-by-Step Explanation & Concept Rationale
Under Section 100 of the Companies Act 2017, particulars of every mortgage or charge created by a company must be filed with SECP for registration (Form 26) within 30 days of its creation.
Q. 10 Accounting & Corporate Finance
Difficulty: Hard (1 Mark)
What is the statutory consequence under the Companies Act 2017 if a charge created by a corporate borrower is NOT registered with the SECP within the prescribed period?
A
The loan is converted into a grant
B
The security charge is void against the liquidator and any creditor of the company
✓ Correct
C
The company's CEO is immediately disqualified
D
The bank becomes the 100% equity owner of the company
💡 Step-by-Step Explanation & Concept Rationale
If not registered with SECP, the charge is invalid against the liquidator and general creditors in winding up, rendering the bank's facility virtually unsecured despite having executed contract documents.
Q. 11 Accounting & Corporate Finance
Difficulty: Hard (1 Mark)
What is the legal difference between a Pledge and a Hypothecation in banking security documentation?
A
In pledge, possession of goods is retained by the borrower; in hypothecation, goods are handed over to the bank
B
In pledge, actual or constructive possession of goods is transferred to the bank (banker is bailee); in hypothecation, possession remains with the borrower with an equitable charge created in favor of the bank
✓ Correct
C
Pledge applies only to immovable property, while hypothecation applies to movable property
D
Hypothecation requires court approval, whereas pledge does not
💡 Step-by-Step Explanation & Concept Rationale
Under the Contract Act 1872, Pledge involves bailment of goods as security where the lender holds custody (godown keys / pledge mukaddam), whereas Hypothecation creates a charge on floating stocks while physical possession remains with the borrower.
Q. 12 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
What is a 'Letter of Hypothecation with Floating Charge' on inventory and book debts?
A
A fixed deposit receipt pledged with SBP
B
A security instrument that attaches to current assets (stock-in-trade, raw materials, receivables) that change dynamically in normal course of business until crystallization occurs upon default
✓ Correct
C
An irrevocable guarantee issued by Ministry of Finance
D
A promissory note without maturity date
💡 Step-by-Step Explanation & Concept Rationale
A floating charge hovers over dynamic/fluctuating assets (stocks and receivables) and crystallizes into a fixed charge when default occurs or enforcement action is initiated.
Q. 13 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
In banking loan documentation, what does 'Conditions Precedent' (CP) signify?
A
Terms to be fulfilled by the borrower after full repayment of the facility
B
Mandatory conditions, documents, and guarantees that must be satisfied and verified before any loan drawdown or disbursement is allowed
✓ Correct
C
Penal interest rates charged on overdue installments
D
Marketing targets given to the Relationship Manager
💡 Step-by-Step Explanation & Concept Rationale
Conditions Precedent are contractual milestones (e.g. board resolution, legal search report, title verification, charge registration, insurance policy) that must be fulfilled before funds can be released.
Q. 14 Accounting & Corporate Finance
Difficulty: Hard (1 Mark)
Under SBP AML/CFT/CPF Guidelines for Banks, what is a Currency Transaction Report (CTR)?
A
A report on any foreign currency purchase above $100
B
A mandatory statutory report filed with the Financial Monitoring Unit (FMU) for any cash transaction exceeding PKR 2 Million (or equivalent in foreign currency)
✓ Correct
C
An annual audit report submitted to SECP
D
A branch cash register summary balanced at 5:00 PM
💡 Step-by-Step Explanation & Concept Rationale
Under the Anti-Money Laundering Act 2010 and SBP regulations, banks must report all cash transactions of PKR 2.0 Million and above to the Financial Monitoring Unit (FMU) via CTRs.
Q. 15 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
When is a bank required to submit a Suspicious Transaction Report (STR) to the Financial Monitoring Unit (FMU)?
A
Only when an account holder is convicted in a court of law
B
Whenever there is reasonable ground to suspect that funds are proceeds of an unlawful activity or terrorism financing, regardless of the transaction amount
✓ Correct
C
Only when a cash transaction exceeds PKR 10 Million
D
Every calendar quarter for top 100 deposit accounts
💡 Step-by-Step Explanation & Concept Rationale
An STR must be generated and filed with FMU immediately whenever a transaction or attempted transaction appears suspicious, regardless of the monetary threshold.
Q. 16 Accounting & Corporate Finance
Difficulty: Easy (1 Mark)
In retail banking, what is the primary objective of 'Affluent Banking' (or Priority Banking)?
A
Disbursing microfinance loans to rural farmers
B
Providing personalized relationship management, wealth advisory, priority branch lounges, and tailored investment/liability solutions to High-Net-Worth Individuals (HNWIs)
✓ Correct
C
Enforcing recovery notices on defaulted borrowers
D
Opening mandatory basic banking accounts (BBA) for students
💡 Step-by-Step Explanation & Concept Rationale
Affluent / Priority Banking targets High-Net-Worth clients by assigning dedicated Relationship Managers, offering investment advisory, higher deposit yield products, and premium lifestyle services.
Q. 17 Accounting & Corporate Finance
Difficulty: Easy (1 Mark)
What constitutes CASA in commercial bank liability management and why is it vital for bank profitability?
A
Credit And Secured Advances; it increases lending risk
B
Current Account & Savings Account; it provides low-cost or zero-cost core deposits that reduce the bank's Cost of Funds (CoF) and expand Net Interest Margin (NIM)
✓ Correct
C
Capital Adequacy Statutory Assessment; required for Basel III
D
Corporate Asset Securitization Agreement; used in capital markets
💡 Step-by-Step Explanation & Concept Rationale
CASA (Current and Savings Accounts) represents low-cost funding for commercial banks, allowing higher spreads on lending and stronger Net Interest Margins.
Q. 18 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
Under SBP Prudential Regulations, what is the classification criterion for a loan asset to be treated as 'Substandard'?
A
Mark-up/interest or principal is overdue by 30 days
B
Mark-up/interest or principal is overdue by 90 days or more
✓ Correct
C
Mark-up/interest or principal is overdue by 180 days
D
Mark-up/interest or principal is overdue by 1 year
💡 Step-by-Step Explanation & Concept Rationale
Under SBP asset classification rules, loans with servicing overdue by 90 days are classified as Substandard, requiring 25% provisioning against uncollateralized exposure.
Q. 19 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
Under SBP Prudential Regulations, when does a non-performing loan (NPL) get classified as a 'Loss'?
A
When principal or mark-up is overdue by 90 days
B
When principal or mark-up is overdue by 180 days
C
When principal or mark-up is overdue by 365 days (1 year) or more
✓ Correct
D
When principal is overdue by 5 years
💡 Step-by-Step Explanation & Concept Rationale
An advance is classified as Loss when payment of principal or mark-up is overdue by 365 days or more, requiring 100% provisioning (adjusted for forced sale value of mortgaged property).
Q. 20 Accounting & Corporate Finance
Difficulty: Hard (1 Mark)
What is the purpose of Forced Sale Value (FSV) benefit allowed by SBP in loan provisioning?
A
To increase taxes paid to FBR
B
To deduct a regulated percentage of the appraised liquid real-estate collateral value from the provisioning requirement against classified non-performing loans
✓ Correct
C
To immediately auction mortgaged properties without court notice
D
To write off unsecured loans of political figures
💡 Step-by-Step Explanation & Concept Rationale
SBP allows banks to take FSV benefit of mortgaged immovable properties and pledged stock against provisioning requirements, subject to periodic professional revaluations by SBP-approved evaluators.
Q. 21 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
What is the Debt Service Coverage Ratio (DSCR) formula used by commercial banks in evaluating term loan proposals?
A
Total Assets / Total Liabilities
B
(Net Operating Income + Depreciation + Non-cash items) / (Annual Principal Repayments + Interest Payments)
✓ Correct
C
Current Assets / Current Liabilities
D
Net Profit / Paid-up Capital
💡 Step-by-Step Explanation & Concept Rationale
DSCR measures the entity's ability to produce sufficient cash flow to cover its annual debt obligations (principal + interest). A DSCR above 1.25x is standardly desired.
Q. 22 Accounting & Corporate Finance
Difficulty: Easy (1 Mark)
In banking credit risk assessment, what is the Significance of Current Ratio and what is its standard benchmark for working capital finance?
A
Current Ratio = Total Debt / Equity; benchmark 3.0
B
Current Ratio = Current Assets / Current Liabilities; benchmark minimum 1.0 to 1.33x
✓ Correct
C
Current Ratio = Fixed Assets / Total Revenue; benchmark 0.5
D
Current Ratio = Cash / Bank Overdraft; benchmark 2.0
💡 Step-by-Step Explanation & Concept Rationale
Current Ratio gauges liquidity. Under standard bank credit policies, a ratio of >= 1.0 to 1.33 indicates adequate short-term solvency to meet maturing obligations.
Q. 23 Accounting & Corporate Finance
Difficulty: Easy (1 Mark)
What is the Financial Electronic Clearing House (NIFT) primarily responsible for in Pakistan's banking sector?
A
Managing Pakistan Stock Exchange trading terminals
B
Automated paper cheque truncation, image clearing, and interbank instruments processing
✓ Correct
C
Issuing National Identity Cards
D
Auditing government provincial departments
💡 Step-by-Step Explanation & Concept Rationale
NIFT (National Institutional Facilitation Technologies) operates the automated clearing house for physical cheques, demand drafts, and payment instruments in Pakistan.
Q. 24 Accounting & Corporate Finance
Difficulty: Easy (1 Mark)
What is the function of 1LINK switch in Pakistan's banking infrastructure?
A
Collecting custom duties on agricultural imports
B
Providing shared interbank ATM switching, 1BILL bill payments, Inter-Bank Funds Transfer (IBFT), and Raast instant payment processing
✓ Correct
C
Regulating insurance companies under SECP
D
Publishing the annual monetary policy statement
💡 Step-by-Step Explanation & Concept Rationale
1LINK is the national financial switch facilitating ATM interoperability, online banking transfers, utility bill payments, and interbank settlement.
Q. 25 Accounting & Corporate Finance
Difficulty: Medium (1 Mark)
Under the Financial Institutions (Recovery of Finances) Ordinance 2001 (FIRO 2001), which specialized court has exclusive jurisdiction to hear banking recovery suits?
A
Sessions Court
B
Special Banking Court
✓ Correct
C
Federal Shariat Court
D
Labour Court
💡 Step-by-Step Explanation & Concept Rationale
Banking Courts established under Section 4 of FIRO 2001 have specialized jurisdiction to try suits for recovery of written finances and enforcement of mortgaged collateral.
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