Circulars/Notifications - Banking Supervision Department  
BSD  Circular No . 12 of 2004
August 25, 2004  

The Presidents/ Chief Executives
All Banks/DFIs

Dear Sirs/Madam,


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:-

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.

4) These instructions will supersede all existing instructions regarding Minimum Capital Requirements with effect from 31st December, 2004.

Please acknowledge receipt.

Encl: As Above

Yours faithfully,


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