ISLAMABAD – The State Bank of Pakistan (SBP) has doubled the minimum capital requirement for locally incorporated banks to Rs20 billion, raising the threshold from Rs10 billion maintained for the past 17 years in a move aimed at strengthening the banking sector and ensuring financial institutions can meet rising operational costs.
Under BPRD Circular No. 02 of 2026, issued on October 27, the revised requirement also applies to Islamic banking subsidiaries of conventional banks. Existing banks and development finance institutions (DFIs) have been given until December 31, 2030, to meet the new standards.
The central bank has linked the revision to the increasing expenses associated with establishing and operating financial institutions on a sustainable basis.
The previous minimum capital threshold was introduced in April 2009, when the SBP revised an earlier plan that required banks to increase their paid-up capital, after adjusting for accumulated losses, to Rs23 billion by the end of 2013. The target was subsequently reduced to Rs10 billion, which remained unchanged despite major economic and financial developments over the following years.
The minimum capital requirement (MCR) is different from the capital adequacy ratio (CAR). While CAR determines how much capital a bank must maintain in relation to its risk-weighted assets, MCR establishes a fixed minimum amount of shareholders’ funds that an institution must retain regardless of its size or business activities.
Pakistani banks are currently required to maintain total capital equivalent to at least 11.5 per cent of their risk-weighted assets, including the capital conservation buffer.
The fixed capital threshold ensures that banks have a substantial financial stake of their own to absorb potential losses. It also prevents institutions from relying solely on favourable risk-weighted asset calculations to demonstrate financial strength.
Failure to comply with minimum capital rules can result in restrictions on banking operations and, in serious cases, cancellation of a banking licence.
The latest increase is also intended to reflect the changing economics of running a bank. Financial institutions now face substantial expenditure on cybersecurity, anti-money-laundering compliance, digital banking infrastructure, instant payment services and technology required to compete with emerging financial service providers.
The real value of the previous Rs10 billion requirement has also declined considerably because of inflation and the depreciation of the Pakistani rupee. The amount was equivalent to approximately $125 million in 2009 but is now worth around $36 million.
Unlike the more aggressive capitalisation plan announced in 2008, the latest revision provides banks with a four-year adjustment period. The earlier proposal had sought to create larger and financially stronger institutions through a rapid increase in minimum capital, but the global financial crisis and Pakistan’s balance-of-payments difficulties forced the central bank to soften its approach.
The 2026 circular also introduces changes to the calculation of eligible capital. Banks will now be allowed to include statutory reserves, comprising portions of annual profits retained under Section 21 of the Banking Companies Ordinance, 1962, alongside other previously recognised capital components. Such reserves cannot be withdrawn without prior SBP approval.
This provision could help profitable banks meet the revised threshold without seeking fresh investment from shareholders, as retained earnings accumulated over several years may contribute towards the required amount.
The circular also revises capital requirements for foreign banks operating through branches in Pakistan. Institutions operating up to five branches must maintain assigned capital of at least Rs5 billion, while those with six to 50 branches must maintain Rs10 billion, compared with the previous requirements of Rs3 billion and Rs6 billion, respectively.
For development finance institutions, the minimum capital requirement has been set at Rs10 billion, maintaining the threshold applicable under the previous framework.
The revised rules could create challenges for smaller and financially weaker lenders that have struggled to maintain even the earlier capital threshold.
First Women Bank, a government-owned institution, has previously received regulatory concessions allowing its minimum capital requirement to be reduced to Rs3 billion. However, its paid-up capital after accounting for losses stood at Rs2.296 billion at the end of 2025. The government approved its privatisation in 2024.
Bank Makramah, formerly known as Summit Bank, reached the previous Rs10 billion benchmark following a restructuring arrangement approved by the Islamabad High Court in November 2025. Its board subsequently endorsed a proposal by sponsor Nasser Lootah for an additional Rs10 billion capital injection, which could help the lender approach the revised requirement if completed.
Silkbank provides another example of the difficulties faced by undercapitalised institutions. The bank had a capital shortfall of approximately Rs6.5 billion against the previous regulatory requirement in 2020. It was eventually merged into United Bank Limited (UBL) through a share-swap arrangement in March 2025.
The revised capital framework is expected to encourage further consolidation in the banking industry. Smaller institutions unable to secure additional investment may have to attract financially stronger sponsors, enter into mergers or become part of larger banking groups.
The SBP has previously used minimum capital requirements to encourage consolidation. When the Rs10 billion threshold was enforced in 2013, the International Monetary Fund called for plans to address nine banks that had fallen below the prescribed level through recapitalisation, mergers or liquidation.
The latest decision is therefore expected to place greater pressure on weaker lenders while allowing financially stronger banks to adjust to the new regulatory threshold over the coming four years.
