Circular No. 01 of 2008
January 01, 2008
The Presidents/Chief Executives
Capital Requirements- Implementation of Basel II
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.
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:
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,
(LUBNA FAROOQ MALIK)