SBP Doubles Minimum Capital Requirement for Banks to Rs20 Billion

The revised rules raise capital requirements for local banks and set new thresholds for foreign bank branches and development finance institutions.

The State Bank of Pakistan (SBP) has doubled the Minimum Capital Requirement (MCR) for locally operating banks from Rs10 billion to Rs20 billion, citing rising costs associated with establishing and running financial institutions on a sustainable basis.

The revised framework applies to new and existing banks, foreign bank branches and development finance institutions (DFIs). It also covers Islamic banking subsidiaries of banks operating in Pakistan.

Under the new requirements, foreign banks operating through branches in Pakistan will need to maintain minimum assigned capital, net of losses, according to the size of their local branch network.

Foreign banks with up to five branches must maintain assigned capital of at least Rs5 billion. Those operating between six and 50 branches will be required to maintain Rs10 billion.

The SBP has also set the minimum capital requirement for development finance institutions at Rs10 billion.

Existing banks and DFIs have until December 31, 2030, to comply with the revised requirements, according to the announced framework.

The central bank has also allowed statutory reserves maintained under Section 21 of the Banking Companies Ordinance, 1962, to count towards the minimum capital requirement, alongside the items already permitted under BPRD Circular No. 06 of 2013.

However, statutory reserves counted towards the MCR cannot be withdrawn without prior approval from the SBP.

In a research note, Arif Habib Limited (AHL) said listed banks covered by its analysis were expected to retain substantial capital buffers, averaging around Rs50 billion. The brokerage did not expect the revised framework to cause a material change in dividend payouts.

However, the higher capital threshold could raise entry costs for new banks, particularly smaller institutions that may have limited accumulated statutory reserves.

The revised framework is intended to strengthen the capital base of financial institutions as they face higher operating costs. Banks will need to assess their capital positions and compliance plans in line with the applicable deadlines.