Circulars/Notifications - Financial Stability Department  
 FSD Circular No. 01 of 2020

September 01, 2020

The Presidents / Chief Executives
All Banks/ DFIs/MFBs

Dear Sir/Madam,

Guidelines on Stress Testing

This refers to BSD Circulars No.1 dated May 11, 2012 on the subject.

2.   State Bank of Pakistan (SBP), in pursuance of its goal to further strengthen the risk management capacity of banks, DFIs and MFBs, has revised the existing Guidelines on Stress Testing (ST) to align with the changing local dynamics and international best practices (Annexure-A).

3.   The scope of revised ST guidelines has been broadened to incorporate guidance on Scenario Analysis, aka Macro-stress Testing (MST), and Reverse Stress Testing (RST) besides the Sensitivity Analysis (SA) with enhanced number of shock scenarios. In terms of coverage, besides Banks/DFIs, Islamic Banks/ Islamic Banking Branches (IBs/IBBs) and Micro-Finance Banks (MFBs) are now being required to conduct SA exercise. Further, as prescribed in BPRD Circular No. 04 dated April 13, 2018, the sample of Domestic Systemically Important Banks (D-SIBs) are required to conduct MST and RST and submit it as a part of their Internal Capital Adequacy Assessment Process (ICAAP) document. Moreover, the data submission requirements have been rationalized and financial institutions are now required to furnish data on a minimal number of variables. Accordingly, the guidelines prescribe following revised reporting arrangements:-

  1. The sample of D-SIBs, shall incorporate the MST and RST results based on data as of December 31 in the relevant section(s) of the ICAAP document and submit the document to SBP on annual basis by May 31 of the following year. The first report based on end-CY20 data, shall, however, be submitted by June 30, 2021.
  2. While Banks and DFIs will continue to conduct quarterly SA exercise on the shocks under revised guidelines, they will not be required to submit the quarterly results to SBP effective from fourth quarter of CY20.
  3. IBs/IBBs and MFBs are required to submit the results of quarterly SA exercise on the shocks under sections 4.2 and 4.3, respectively, of the attached guidelines, for four quarters. (Annexure-B).
  4. The banks, DFIs and IBs/IBBs shall submit quarterly dataset for SBP’s in-house stress testing as per revised templates (Annexure-C).
  5. The results of quarterly SA exercise and the dataset under 3(c) and 3(d), respectively, shall be submitted within 15 working days of the end of the quarter, with first such submission based on Q4CY20 statistics.
  6. The above information shall be submitted through SBP’s Data Acquisition Portal (DAP) as per the prescribed timelines.

4.    The SBP, as a part of its supervisory process, will regularly conduct its own in-house ST exercises and, if required, may engage with banks/DFIs/IBs/MFBs for any risk mitigation measures/contingency plans based on the outcome of the exercises. The SBP inspection teams may also review the process of stress testing on a test check basis.

5.   Please acknowledge receipt.


Annexure-A: Guidelines on Stress Testing

Annexure-B: Template for submission of SA exercise

Annexure-C: Data Templates for banks, DFIs and IBs/IBBs

Yours faithfully,

(Muhammad Javaid Ismail)

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