Circulars/Notifications - Banking Surveillance Department  
 BSD Circular No. 01 of 2008
January 01, 2008

The Presidents/Chief Executives
All Banks/DFIs

Dear Sirs/ Madam,


Minimum Capital Requirements- Implementation of Basel II

1. Please refer to the BSD Circular No. 03 dated March 31, 2005 and BSD Circular No. 8 dated June 27, 2006 regarding implementation of Basel II in Pakistan.

2. In terms of the issued timeline, all banks/DFIs are required to adopt standardized approaches for Credit and Market Risk and Basic Indicator/Standardized approach for operational risk from 1st January 2008; while they are advised to adopt a parallel run of two years for IRB approaches starting 1st January 2008. The SBP instructions further require that adoption of Foundation or Advanced IRB for Credit and Internal Models Approaches for Market Risk will be subject to the prior written approval of State Bank, and banks/DFIs were advised to approach the State Bank for necessary approval.

3. Keeping in view the roadmap of Basel II Implementation in Pakistan the banks/DFIs are advised as under:

a. The standardized approach will become effective from 1st January 2008, and the banks/DFIs should report their capital adequacy accordingly. However, they should also continue to submit their calculations based on Basel I until such time as the SBP issues instructions to terminate the same.

b. The transition towards advanced approaches will be based on SBP’s assessment on adequacy and state of preparedness in data warehousing, IT systems, gap analysis and filling etc. All banks/DFIs are advised to submit to State Bank of Pakistan, Banking Surveillance Department, an action plan as per the attached format, latest by April 30, 2008 spelling out the activities and the expected timelines to develop systems for meeting the requirements for advanced approaches as laid down in BSD Circular No. 8 dated June 27, 2006. The timeline for parallel run and adoption of advanced approaches will be determined and approved by SBP based on submitted plan and assessment of preparedness of the individual bank/DFI.

4. All other instructions on the subject shall, however, remain unchanged.

Please acknowledge receipt.

Encl: Formats

Yours faithfully,



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