Pakistan Raises Minimum Capital for Domestic Banks to 20 Billion Rupees
Key Facts
The State Bank of Pakistan raised the minimum capital requirement for existing domestic banks to 20 billion rupees, from 10 billion rupees previously, under a circular issued on October 27, 2026. The change also applies to foreign bank branches and development finance institutions, but at different thresholds depending on the institution type and number of branches. The central bank said the review came "in light of the increased costs of establishing and operating financial institutions on a sustainable basis." The circular gives existing banks and development finance institutions until December 31, 2030, to meet the new thresholds. The decision resets minimum capital requirements across different banking categories, while allowing eligible statutory reserves to count toward the requirements.
Under the circular, foreign bank branches with up to 5 branches must maintain assigned capital of at least 5 billion rupees, while the threshold rises to 10 billion rupees for branches operating from 6 to 50 branches. This sets a tiered requirement for these branches based on the size of their networks, instead of applying a uniform threshold. For development finance institutions, the central bank set the minimum capital requirement at 10 billion rupees. These categories differ from existing domestic banks, whose minimum required capital has increased to 20 billion rupees. The central bank set December 31, 2030, as the deadline for existing banks and development finance institutions, while the circular did not specify a separate deadline for foreign bank branches.
The increase in the threshold for domestic banks marks a change from the previous rule of 10 billion rupees, according to the central bank's regulatory standards page. The central bank said the change was justified by higher costs of establishing and operating financial institutions on a sustainable basis, without citing in the circular a goal of strengthening capital buffers or addressing evolving economic risks. Against this backdrop, the banking sector's risk-weighted capital adequacy ratio stood at 20.8% at the end of 2025, compared with 20.6% at the end of 2024, according to the central bank's financial stability review. The indicator measures available capital relative to risk-weighted assets, while the new minimum sets a nominal amount required of institutions. The regulation therefore combines a minimum total requirement for each category with a sector-wide indicator of risk-based capital adequacy.
The central bank allowed statutory reserves established under Article 21 of the Banking Companies Ordinance, 1962, to be included in capital requirements. It required its prior approval, however, before any statutory reserves counted toward the requirements can be withdrawn. This means eligibility for inclusion comes with a restriction on the use of those funds, under the circular. The text does not specify the amount of eligible reserves held by each bank, so it does not by itself show how much can be counted against the new thresholds. The provision gives institutions a way to count an existing statutory item while leaving approval for its withdrawal with the central bank.
In the market, Pakistan's KSE-100 index rose 1,428.73 points, or 0.88%, on October 28 to close at 164,467.20 points. A report by Dawn said shares in MCB Bank, Fauji Fertilizer, United Bank, Pakistan Petroleum and National Bank contributed to the gains, with four of them adding about 490 points to the index. The report did not link this performance to the capital circular, so the index move does not constitute evidence of a market response to the decision. The compliance deadline for existing banks and development finance institutions remains December 31, 2030, while the circular set no similar date for foreign bank branches.