The State Bank of Pakistan (SBP) has doubled the minimum capital that banks must hold, raising the requirement for locally incorporated banks from Rs10 billion to Rs20 billion. The central bank announced the change in a circular issued on 27 October, saying it reflected the rising cost of setting up and running a financial institution on a sustainable basis.
The State Bank is Pakistan’s central bank. It sets the policy interest rate, supervises banks and manages the country’s foreign exchange reserves. When it sets a minimum capital rule, it is deciding how much of a bank’s own money must stand behind its business before it can take deposits and lend.
What minimum capital actually is
Minimum capital requirement, or MCR, is the floor of a bank’s own funds. Think of it as the bank’s own cushion: if loans go bad, that cushion absorbs the loss before depositors’ money is at risk. It is different from the capital adequacy ratio, which measures a bank’s capital against the riskiness of its loans. The MCR is mainly about who is big and strong enough to run a bank at all, while the adequacy ratio is about how much risk a bank is carrying day to day.
Under the new framework, locally incorporated banks, including the Islamic banking subsidiaries of conventional banks, must hold Rs20 billion. Development finance institutions, which lend for longer-term projects rather than taking ordinary deposits, must hold Rs10 billion. Foreign banks operating through branches in Pakistan must hold assigned capital of Rs5 billion if they have up to five branches, and Rs10 billion if they have between six and 50 branches. Existing banks and development finance institutions have until 31 December 2030 to meet the new levels, and statutory reserves held under the Banking Companies Ordinance will count towards the requirement.
Why the timing raised eyebrows
The change came a day after the State Bank’s Monetary Policy Committee raised the policy interest rate by 50 basis points to 12.0 percent, effective 27 October, to deal with rising inflation risks from the Middle East conflict and high global energy prices. A Business Recorder editorial noted the close timing and suggested the capital move may be linked to understandings in the International Monetary Fund’s fourth review staff-level agreement, published on 7 October. That is the newspaper’s reading, not a statement by the central bank, whose own stated reason was rising operating costs.
Analysts at Arif Habib Limited, assessing banks’ September 2026 balances, expect listed banks to keep substantial buffers above the new requirement once statutory reserves are counted, and do not expect the change to materially affect dividend payouts. In plain terms, the big banks already hold far more than Rs20 billion, so the new floor is unlikely to force sudden changes at the largest names.
What this means
For ordinary savers, the practical effect is gradual, not immediate. No bank has to meet the new level tomorrow, and depositors should not expect deposit rates or loan rates to change because of this rule alone — those are driven far more by the 12 percent policy rate and by each bank’s own decisions. Over time, a higher capital floor should mean a stronger cushion behind the banking system and a higher bar for any new bank entering the market. The thing to watch is whether smaller banks find the 2030 deadline comfortable or tight, and whether the central bank tightens further if inflation stays in double digits.
Sources: Business Recorder, Dawn. Written in our own words for information only — not investment advice.