The State Bank of Pakistan (SBP) is to tighten capital requirements on banks operating in Pakistan. SBP has issued a circular asking banks to submit current equity positions and minimum capital requirements, factoring in risk-weighted assets. The risk-adjusted capital adequacy ratio of most state-owned commercial banks averages 3 per cent. Foreign and private banks average 8 per cent.

Bankers said that the move could restrict lending, or force banks to raise capital. State banks, many of which have large bad loan portfolios, would be hardest hit, and growth would be restricted. However, the formation of a new banking authority, to be known as the Resolution Trust Corporation of Pakistan, which would take on bad debts of banks prior to privatisation, will ease pressures on the banks.

SBP has also issued orders to nationalised commercial banks and development finance institutions to cut lavish expenses and redefine loan recovery policies. SBP’s instructions come after it was given new powers and greater autonomy in January (MEED 31:1:97).