Rs20 billion capital limit set for banks

Karachi, Pakistan - The State Bank of Pakistan (SBP) has recently raised the Minimum Capital Requirements (MCR) for all local and foreign banks operating in the country. In a circular issued on Wednesday, the central bank announced that the MCR for new and existing banks, foreign bank branches, and Development Financial Institutions (DFIs) has been increased due to higher operating costs associated with establishing and sustainably managing financial institutions.

The MCR for locally incorporated banks, including Islamic banking subsidiaries, has been set at Rs20 billion. Foreign banks in Pakistan, whether through branches or otherwise, will need to maintain a capital of at least Rs5 billion for banks with up to five branches, and Rs10 billion for those operating between six and 50 branches.

Development Financial Institutions (DFIs) are required to maintain a capital of Rs10 billion. The circular further states that existing banks and DFIs must meet these MCR by December 31, 2030. Statutory reserves created under Section 21 of the Banking Companies Ordinance 1962, in addition to items already prescribed under BPRD circular no. 06 of 2013, can be included in the MCR.

However, these reserves cannot be withdrawn without prior approval from the SBP. The purpose of the MCR is to ensure financial institutions maintain a strong, high-quality capital buffer to handle bad loans or economic downturns without failing, thereby protecting depositors and maintaining trust in the banking system.