SBP doubles minimum capital requirement for banks to PKR 20 billion

The State Bank of Pakistan (SBP) has doubled the minimum capital requirement for locally incorporated banks to PKR 20 billion from PKR 10 billion, giving existing banks and development finance institutions until December 31, 2030, to comply.

In a circular issued on October 27, the central bank said the revised requirements were intended to address rising costs associated with establishing and operating financial institutions on a sustainable basis.

The new rules cover locally incorporated banks, Islamic banking subsidiaries, foreign bank branches and development finance institutions (DFIs).

What are the new minimum capital requirements?

Locally incorporated banks, including Islamic banking subsidiaries, must maintain minimum capital of PKR 20 billion, while DFIs are required to maintain PKR 10 billion.

Foreign banks operating through branches in Pakistan face different requirements depending on their branch networks.

Those operating up to five branches must maintain assigned capital, net of losses, of at least PKR 5 billion. Foreign banks with six to 50 branches must maintain at least PKR 10 billion.

Existing banks and DFIs have until December 31, 2030, to meet the revised requirements.

What counts toward the minimum capital requirement?

The SBP has allowed banks to include statutory reserves maintained under Section 21 of the Banking Companies Ordinance, 1962, when calculating their minimum capital.

These reserves can be counted alongside other eligible capital items already permitted under the central bank's regulations.

However, reserves included in the calculation cannot be withdrawn without prior SBP approval.

The change gives banks greater flexibility in meeting the higher capital threshold by allowing them to count reserves they already maintain.

Will banks need to raise additional capital?

Analysts expect the immediate impact on most banks under their coverage to be limited, as their existing eligible capital and statutory reserves are expected to exceed the revised PKR 20 billion threshold.

However, a few banks may require further assessment to determine whether they meet the new requirement.

The analysts said they were seeking additional clarification from banks and would provide updates if material information emerged.

The revised requirements update earlier SBP directives issued in 2008, 2009 and 2014. All other existing instructions on minimum capital requirements remain unchanged.