SBP doubles minimum capital requirement for banks to Rs20bn

The State Bank of Pakistan has doubled the minimum capital requirement (MCR) for locally incorporated banks, including Islamic banking subsidiaries, from Rs10 billion to Rs20 billion, and existing banks and development finance institutions (DFIs) have until December 31, 2030 to comply.

The increase was announced in a circular issued on Wednesday. ProPakistani reported that the central bank cited higher operating costs involved in establishing and sustainably managing financial institutions; Business Recorder carried the same reason and the same Rs10 billion to Rs20 billion figure.

Foreign banks operating in Pakistan through branches face separate assigned-capital requirements, net of losses: Rs5 billion for those running up to five branches, and Rs10 billion for those operating between six and 50 branches. The minimum capital requirement for DFIs has been set at Rs10 billion.

Under the revised framework, statutory reserves created in line with Section 21 of the Banking Companies Ordinance, 1962 will be eligible for inclusion in the MCR, in addition to the items already prescribed under BPRD Circular No 06 of 2013. Reserves counted towards the requirement cannot be withdrawn without the SBP's prior approval, the circular said.

ProPakistani reported that minimum capital requirements are intended to ensure financial institutions hold enough capital to absorb unexpected losses, manage bad loans and withstand economic downturns.

A research note by Arif Habib Limited estimated that the listed banks it covers will retain substantial capital buffers averaging around Rs50 billion, and said it does not expect any material change in dividend payouts. The brokerage said the revised requirements could increase capital needs for new entrants, particularly smaller banks that have limited accumulated statutory reserves.

Both outlets reported that the higher thresholds apply to new and existing banks, foreign bank branches and DFIs. Neither reported any change to the deadline for institutions already operating under the previous Rs10 billion requirement, which is December 31, 2030.