In view of developments over the last few years on the international as well as domestic front, the State Bank of Pakistan (SBP) has revised the requirement of Higher Loss Absorbency (HLA) capital surcharge for designated Domestic Systemically Important Banks (D-SIBs) in the form of additional Common Equity Tier 1 (CET1).
Designated D-SIBs shall be required to meet Higher Loss Absorbency (HLA) capital surcharge in the form of additional Common Equity Tier 1 (CET1).
This additional CET1 requirement will be an extension of the capital conservation buffer and will be applicable on solo and consolidated bases.
| Revised Common Equity Tier 1 (CET1) | ||
| Bucket | CET1 | Revised |
| D | 3.5% | 2.5% |
| C | 2% | 1.5% |
| B | 1.5% | 1.0% |
| A | 1.0% | 0.5% |
Bucketing criteria are based on four buckets with the top bucket indicating the highest systemic importance. The top bucket D will be kept empty. However, if the systemic importance of any bank increases significantly based on the composite systemic score, another bucket may be added on the top with the higher capital requirement.
This regulatory requirement follows bucketing approach, with the level of capital surcharge increasing with the systemic importance of the bank as determined by the composite systemic score. The designated D-SIB graded in the lower bucket based on the composite systemic score will attract a lower capital charge and a DSIB falling in the higher bucket will attract a higher charge.
G-SIB’s branch operations in Pakistan that are also designated as D-SIB will be required to hold additional CET1 capital on its risk-weighted assets in Pakistan at the rate prescribed above or as applicable on the G-SIB, whichever is higher.
If such a branch of G-SIB is not designated as D-SIB in Pakistan, it will hold additional CET1 capital on its risk-weighted assets in Pakistan at the rate applicable to the G-SIB. However, a locally incorporated subsidiary (bank) of a G-SIB that is not designated as D-SIB (as per the above bucketing criteria), such subsidiary bank will not be required to hold the additional CET1 capital for systemic risk, as it will be treated as a locally incorporated bank.
