State Bank of Pakistan Raises Minimum Capital Requirement to Rs20 Billion

KARACHI: The State Bank of Pakistan (SBP) has announced an increase in the Minimum Capital Requirements (MCR) for both local and foreign banks, as part of its efforts to enhance the stability and sustainability of the financial sector.

In a circular issued on Wednesday, the central bank outlined that the MCR for locally incorporated banks, including Islamic banking subsidiaries, will now be set at Rs20 billion. For foreign banks operating through branches in Pakistan, the requirements vary: banks with up to five branches must maintain a capital of at least Rs5 billion, while those with six to 50 branches are required to hold Rs10 billion. Development Financial Institutions (DFIs) will have a minimum capital requirement of Rs10 billion, with existing banks and DFIs expected to comply by December 31, 2030.

This move comes in response to rising operational costs associated with establishing and managing financial institutions sustainably. By raising the MCR, the SBP aims to bolster the resilience of the banking sector, ensuring that institutions are better equipped to handle economic fluctuations and potential financial crises.

Looking ahead, the SBP’s decision is likely to prompt banks to reassess their capital structures and strategies. Financial institutions will need to adapt to these new requirements, which could lead to increased consolidation in the sector as smaller banks may struggle to meet the higher capital thresholds. The central bank’s circular also indicates that statutory reserves, as defined under the Banking Companies Ordinance 1962, will be eligible for inclusion in the MCR, providing banks with additional flexibility in meeting these new standards.