Capitalisation of overall banking system in Pakistan is strong: IMF

Some small banks, however, continue to remain under-capitalised

KARACHI: The International Monetary Fund (IMF) said the capitalisation of the overall banking system in Pakistan is strong, although some small banks continue to remain under-capitalised.

In the eleventh review of Pakistan’s economic performance under a 36-month loan programme of about $6.2 billion, the IMF said its staff members have stressed the need for the State Bank of Pakistan (SBP) to continue “closely engaging” with the under-capitalised banks to ensure their statutory compliance at the earliest.



The IMF has consistently pushed the SBP to ensure that banks comply with minimum capital requirement (MCR), which is Rs10 billion, and capital adequacy ratio (CAR). Expressed as a percentage of a bank’s risk-weighted credit exposures, CAR measures the soundness of a banking institution and reflects the level of protection its depositors enjoy.

Without naming the banks, the international lender said two small banks with 1.5% of banking assets recently became marginally CAR-noncompliant in part due to an increase in the CAR requirement. The CAR requirement was increased by 0.25% to 10.25% by December 2015, with the objective of raising it to 12.5% by 2019.

One of these banks has already received a partial capital injection and is expected to be brought into regulatory compliance by August 2016, it said. The other one is in the process of being privatised and expected to become CAR-compliant by the end of this year, the IMF said.



 

Another small bank, which is below the absolute minimum capital requirement (MCR), has initiated the merger process with another bank by December, it added without delving into specifics.

Published in The Express Tribune, July 14^th, 2016.

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