State Bank of Pakistan (SBP) appointed three banks— Habib Bank Limited, United Bank Limted and National Bank of Pakistan—as Domestic Systemically Important Banks (D-SIBs)
These banks will be required to follow enhanced supervisory and regulatory requirements, including the Higher Loss Absorbency Capital surcharge in the form of additional core equity tier-1 capital (CET1). HBL will maintain a CET1 rating of 2%, while NBP and UBL will need to retain an additional CET1 of 1.5%.
Besides these local banks, branches of Global-Systemically Important Banks (G-SIBs) operating in Pakistan will hold additional CET1 capital against their risk-weighted assets in the country at the rate as applicable on the respective G-SIB.
The global financial crisis has highlighted the importance of enhanced supervision of systemically important financial institutions. Accordingly, the standard setting bodies and supervisors across the globe are continuously reviewing the supervisory frameworks and reshaping supervisory policies for enhancing resilience of the systemically important banks.
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In this regard, the D-SIBs framework as introduced by State Bank is consistent with international standards and practices and takes into account the local dynamics. It specifies the methodology for identification and designation of D-SIBs, enhanced regulatory and supervisory requirements, and implementation guidelines. These enhanced requirements aim to further strengthen the resilience of big banks towards shocks and augment their risk management capacities.
The identification of D-SIBs is a two-step process. In the first step, sample banks are identified each year based on a quantitative and qualitative criteria. In the second step, on the basis of institutions’ systemic importance score as determined by their size, interconnectedness, substitutability, and complexity; D-SIBs are designated from among the sample banks.
The designated D-SIBs shall be required to meet both higher loss absorbency requirements and enhanced supervisory requirements. Remaining banks shall only need to meet the enhanced supervisory requirements.
