The
Presidents / Chief Executives
All Banks / DFIs
Dear
Sirs/Madam,
MINIMUM
CAPITAL REQUREMENTS FOR BANKS/DFIs
Please
refer to BSD Circular No.12 dated 25th August, 2004 on the
above subject.
2)
In order to further strengthen the solvency of individual
banks/DFIs, it has been decided to raise the minimum paid
up capital as well as Capital Adequacy Ratio based on Risk
Weighted Assets (CAR) as under:
i)
The existing minimum paid up capital requirement for locally
incorporated banks/DFIs has been raised to Rs 6 billion
(net of losses) to be achieved in a phased manner as follows:
| Minimum
Paid-up Capital |
Deadline
by which to be increased |
| (net
of losses) to be increased to : |
|
|
a) Rs 3 billion |
By
31-12-2006 |
| b)
Rs 4 billionn |
By
31-12-2007 |
| c)
Rs 5 billion |
By 31-12-2008 |
| d)
Rs 6 billion |
By 31-12-2009 |
The branches of foreign banks operating in Pakistan will
also be required to increase their assigned capital to
Rs 6 billion within the above timelines prescribed for
the locally incorporated banks/DFIs. However, those branches
of foreign banks whose Head Offices hold a minimum paid
up capital of US $ 100 million (net of losses) and have
a CAR of 9% (determined as per Basel-I or Basel-II Accord)
can be allowed to continue to maintain the minimum assigned
capital of Rs 2 billion (net of losses). All such branches
of foreign banks shall, however, be required to seek specific
permission from the State Bank to maintain the minimum
assigned capital (net of losses) of Rs 2 billion effective
from 31st December, 2005.
(ii)
The required minimum CAR, on consolidated as well as on
stand alone basis, would continue to be 8%. However, the
existing uniform requirement for CAR has been replaced with
the variable CAR which will be based on the Institutional
Risk Assessment Framework (IRAF) Rating assigned by the
State Bank to each bank and DFI. For this purpose, SBP will
intimate IRAF rating to each bank/DFI separately. Under
IRAF, each bank and DFI is rated on a scale of 1 to 5 based
on its (a) compliance with standards, codes and guidelines;
(b) supervisory and regulatory information; (c) financial
performance and condition; and (d) market information and
intelligence. The required variable CAR to be maintained
by each bank/DFI will be determined as follows:
| IRAF
Rating |
Required CAR effective from |
| |
31st
Dec. 2005 |
31st
Dec., 2006 and onwards |
|
1 & 2 |
8% |
8% |
| 3 |
9% |
10% |
| 4 |
10% |
12% |
| 5 |
12% |
14% |
However,
the banks/DFIs at the margin of the IRAF rating category
which, in the opinion of the regulator, have high risk propensity
may be asked to further increase the required CAR by One
(1) percentage point.
3)
The required minimum paid up capital as well as CAR can
be achieved by the banks/DFIs either by fresh capital injection
or retention of profits. The stock dividend declared after
meeting all the legal and regulatory requirements, and duly
reflected as such in the Annual Audited Accounts will be
counted towards the required paid up capital of the bank/DFI
pending completion of the formalities for issuance of bonus
shares.
4)BSD
Circular No.12 dated 25th August, 2004 shall stand amended
according to Para 2 above, whereas Para 3 of the said circular
has been substituted as under:
“Any
bank/DFI that fails to meet the minimum paid up capital
requirement or CAR within the stipulated period shall render
itself liable to the following actions:
i) Imposition of such restrictions
on its business including restrictions on acceptance
of deposits and lending as may be deemed fit by the
State Bank.
ii)
Descheduling of the bank, thereby converting it into
a non-scheduled bank.
iii) Cancellation of the banking license
if the State Bank believes that the bank is not in a position
to meet the minimum paid up capital requirement or CAR.”
5)
The above instructions will become effective from 31st December,
2005.
6)
All other instructions on the subject shall, however, remain
unchanged.
Please
acknowledge receipt.
|