In Pakistan, banks, Development Finance Institutions (DFIs) and Microfinance Banks (MFBs) are required to comply with the following two capital standards. A brief description of each of the standards is as under:
- Minimum Capital Requirement (MCR):
MCR is the absolute amount of paid-up capital / assigned capital (net of losses) required to be maintained by each bank, DFI and MFB as determined by SBP from time to time and it includes the following elements:
- Fully paid-up common share capital or assigned capital (for foreign bank operating in branch mode)
- Balance in Share Premium Account
- Reserve for Issue of Bonus Shares
- Any other type of instrument approved by the SBP
Less
- Negative General Reserves/Discount on Shares Issuance
- Accumulated Losses
All the existing locally incorporated banks are required to maintain MCR of Rs 10 billion. Branches of foreign banks are required to maintain assigned capital (net of losses) of Rs. 3 billion (if operating with 5 branches or less), Rs. 6 billion (if operating with 6 - 50 branches) and Rs. 10 billion (if operating with more than 50 branches). DFIs are required to maintain an MCR of Rs. 6 billion.
Similarly, for MFBs, the MCR has been set at Rs. 1,000 million, Rs. 500 million, Rs 400 million and Rs 300 million for operating at national level, provincial level, regional and district level respectively.
- Capital Adequacy Ratio (CAR):
CAR is a risk sensitive measure of assessing capital adequacy of Financial Institutions and is computed as the ratio of Total Eligible Capital (TEC) to Total Risk Weighted Assets (TRWAs) which is currently set at 10.25% and will be gradually increased to 12.5% by December 31, 2019 as per Basel III instructions with the inclusion of capital conservation buffer for banks/ DFIs. For MFBs, the CAR requirement is 15%.
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