The
Presidents/ Chief Executives
All Banks/DFIs
Dear
Sirs/Madam,
MINIMUM
CAPITAL REQUIREMENTS FOR BANKS / DFIS
As you are aware, banks/DFIs operating
in Pakistan are required to hold capital against credit
risk. This capital requirement is based on Basel Capital
Accord (Basel I) issued in 1988. Nevertheless, this capital
adequacy standard was amended in 1996 by Basel Committee
for Banking Supervision and capital charge for Market Risk
was also introduced. In order to align the regulatory capital
requirement with the internationally accepted standards
and institute a true risk based capital adequacy framework,
it has been decided to impose capital charge for market
risk, in addition to presently applicable capital requirement
on credit risk
2) Furthermore, in order to strengthen the capital base
of institutions, the minimum paid–up capital requirement
(net of losses) of Rs 1 billion is being increased to Rs
2 billion. Attached to this circular are the detailed instructions
on the revised capital adequacy framework, which will be
effective from 31st December 2004. The instructions are
divided into four parts; Part I contains general instruction
relating to capital adequacy, Part II is about the capital
requirement against credit risk, Part III outlines the calculation
of capital requirement for Market Risk whereas Part IV contains
the prescribed format of return to be submitted to this
department along with the Quarterly Report of Condition.
Banks are required to maintain the required capital according
to the annexed instructions at all times effective from
31st December 2004. Furthermore, the capital position should
be reported to the SBP on consolidated as well as on standalone
basis on the revised format given in part IV of the annexed
instructions as part C of the Quarterly Report of Condition
from the quarter ending 31st December, 2004.
3) Any bank/DFI that will fail to meet the minimum paid-up
capital requirement (net of losses) of Rs 1.5 billion by
31st December 2004 and Rs 2 billion by 31st December, 2005,
shall not be allowed to undertake a full range of financial
services.
Furthermore, a banking company not meeting the said minimum
paid-up capital requirement shall also render itself liable
to the following actions:-
a) Such banking company shall ipso facto stand
de-scheduled and converted into a non-scheduled bank with
effect from 1st January, 2006.
b) Where a banking company, so de-scheduled,
is short in meeting the minimum paid up capital requirement
by more than 25%, such Non-Scheduled Bank shall not be eligible
to collect deposits from the individuals including partnerships/sole
proprietors, or provide any financial services to individuals
including partnership/sole proprietors. Such institutions
shall only be permitted to operate in inter-bank market,
make investments in government securities, and finance import/
export business within such limits as may be specified by
the State Bank, on case to case basis.
c) Where a bank, so de-scheduled, is short
in meeting the minimum paid up capital requirements by less
than 25 per cent, the State Bank on a request made to it
in this behalf, may allow the banking company to continue
accepting the deposits from their corporate/institutional
depositors only upto the limit of total deposits mobilized
by it as on 31st December, 2004 or total outstanding deposits
as on 30th June 2004, which ever is lower, and provide such
other support financial services as may be specifically
allowed by the State Bank.