Last Updated on Thursday, 16 April 2009 13:05 Written by Administrator Thursday, 16 April 2009 10:50
KARACHI: The State Bank of Pakistan (SBP) has revised downward minimum paid-up capital requirement for banks in the face of global economic recession and domestic slowdown, which will provide relief to
the financial sector.
“Now banks are required to raise their minimum paid-up capital (free of losses) to Rs10 billion by December 31, 2013 instead of earlier target of Rs23 billion,” the SBP notified on Wednesday.
The relaxation for the financial sector, however, might halt the process of acquisitions and mergers in the industry for the time being, Farhan Rizvi at JS Research said and added the central bank had the authority to increase the requirement if and when it found the financial sector’s fundamentals strengthening again.
The minimum capital requirement set for this year and next has almost been met by about 80-90 per cent banks, including small ones, which indicates that acquisitions and mergers in the industry will come to a halt.
A couple of days ago, Habib Bank, MCB Bank and JS Bank showed interest in acquiring local operations of Royal Bank of Scotland (RBS), which put its operations on sale in 36 countries.
“This decision of revising downward the minimum capital requirement (MRC) has been taken in view of the global economic slowdown and capital accumulation by financial institutions and representations from shareholders,” said the central bank.
According to an SBP circular, banks will now be required to raise their minimum paid-up capital (free of losses) to Rs6 billion by December 31, 2009, Rs7 billion by December 31, 2010, Rs8 billion by December 31, 2011, Rs9 billion by December 31, 2012 and Rs10 billion by December 31, 2013.
According to instructions issued earlier, banks were required to raise their MCR to Rs10 billion by December 31, 2010, Rs15 billion by December 31, 2011, Rs19 billion by December 31, 2012 and Rs23 billion by December 31, 2013.
The circular said while capital adequacy standards would continue as previously and all banks/development finance institutions (DFIs) shall be required to increase capital adequacy ratio (CAR) to 10 per cent with effect from December 31, 2009 irrespective of their Camels-S rating, till further instructions.
Branches of foreign banks (FBs) operating in Pakistan are also required to raise their assigned capital (net of losses) to Rs10 billion within the above timelines. However, those foreign banks whose head offices hold paid-up capital (free of losses) of at least $300 million and have a CAR of at least eight per cent or minimum prescribed by their home regulator, whichever is higher, will be allowed with prior approval of the State Bank to maintain assigned capital as under:
Foreign banks operating with up to five branches are required to raise their assigned capital to Rs3 billion latest by December 31, 2010.
FBs operating/desirous of operating with six to 50 branches are required to raise their assigned capital to Rs6 billion latest by December 31, 2010, the circular added.
Courtesy: The News
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