SBP Issues New Guidelines for Banks to Ensure Financial Stability and Crisis Preparedness
The State Bank of Pakistan (SBP) has introduced a comprehensive regulatory framework requiring all commercial banks to develop detailed group-wide recovery plans. These plans are designed to help financial institutions prepare for periods of stress, manage losses effectively, and avoid collapse.
Mandatory for All Banks
According to SBP, all commercial banks, including their subsidiaries and associates, must comply with the new requirements. The recovery plans must be aligned with the bank’s size, operations, and risk profile, but must also incorporate all key components outlined in the framework.
Tailored Plans and Regular Testing
Banks are expected to include a wide range of recovery options, such as:
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Capital conservation strategies
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Risk reduction measures
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Business line divestment
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Liability restructuring
Plans must be board-approved and regularly tested to ensure effectiveness in real-world scenarios.
Guidelines for Foreign Banks and Islamic Institutions
Foreign bank branches operating in Pakistan must align their local recovery plans with those of their head offices, ensuring full compliance with SBP’s local regulations.
Islamic Banking Institutions (IBIs) are also required to develop Shariah-compliant recovery strategies. Their Shariah Boards must play an active role in guiding these plans.
Legal Backing and Deadlines
Recent amendments to the Banking Companies Ordinance (1962) and the Deposit Protection Corporation Act (2016) have empowered the SBP to:
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Require and review recovery plans
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Demand revisions when needed
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Eliminate barriers to implementation
Banks must submit their first board-approved recovery plans by June 30, 2026, based on audited financial statements as of December 31, 2025.
Annual Submissions Required
To ensure long-term resilience, banks must submit their recovery plans annually by June 30, or within 15 days of any material revision approved by the board.
Each plan must include:
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An overview of the bank’s business model
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Identification of core business lines
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A detailed look at local and international operations
The SBP’s initiative reflects international best practices and aims to strengthen the stability and resilience of Pakistan’s banking sector in the face of global financial uncertainties.
