KARACHI (The Thursday Times) — The State Bank of Pakistan has doubled the minimum capital that banks operating in the country must hold, to Rs20 billion from Rs10 billion, citing the rising cost of setting up and running financial institutions.
The new requirement applies to new and existing locally incorporated banks, including the Islamic banking subsidiaries of banks, the central bank said in a circular. Existing banks and development finance institutions have until December 31, 2030 to comply.
Foreign banks and DFIs
Foreign banks operating through branches will have to keep minimum assigned capital, net of losses, of Rs5 billion if they run up to five branches, and Rs10 billion if they run between six and 50. Development finance institutions will need Rs10 billion.
Statutory reserves held under Section 21 of the Banking Companies Ordinance, 1962 will also count towards the requirement, though banks will not be able to withdraw reserves counted this way without the State Bank’s approval.
Pressure on smaller banks
Brokerage Arif Habib Limited said in a research note that the listed banks it covers already hold capital buffers averaging around Rs50 billion and that it did not expect the change to affect their dividend payouts. But the higher bar could raise capital needs for new entrants and smaller banks with limited accumulated reserves, it said.
The move follows the State Bank’s decision this week to raise its policy rate by half a point to 12%, citing the inflationary impact of the Middle East war and high energy prices.
