KARACHI: The State Bank of Pakistan (SBP) has issued revised instructions under the Basel Capital Adequacy Framework for the Standardized Approach to Credit Risk, marking the first step toward implementing Phase II of Basel III reforms.
The new guidelines will be applied on a parallel run basis from September 30, 2025, to June 30, 2026, allowing banks, digital banks, and DFIs to adjust and provide feedback before full adoption.
According to SBP, the Global Financial Crisis (GFC) exposed critical weaknesses in the financial system, prompting global regulatory reforms. In response, the Basel III framework was introduced by the Basel Committee on Banking Supervision (BCBS) to address shortcomings of the pre-crisis regime and strengthen the resilience of the banking sector.
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BCBS reforms are broadly divided into two phases. Phase I focused on enhancing capital adequacy, introducing liquidity and leverage ratios, and establishing the D-SIB framework. Phase II emphasises revisions to the risk-weighting regime, leverage ratio, and other enhancements.
SBP has already implemented Phase I reforms. As a first step toward adopting Phase II reforms in a smooth and timely manner, and in line with BCBS guidance, SBP has developed revised instructions on the Standardized Approach for Credit Risk.
These revised instructions will be implemented across the industry on a parallel run basis from September 30, 2025 to June 30, 2026 (four quarters). This approach will allow SBP to assess practical challenges and incorporate industry feedback, if required, for final implementation.
During the parallel run period, banks, digital banks, and development finance institutions (DFIs) will be required to submit capital adequacy returns under both the existing and revised instructions.
Under the current framework, quarterly returns must be filed within 14 working days of the quarter-end and annual audited returns within three months of the year-end.
Under the revised regime, quarterly returns will be due by the end of the month following the quarter-end, while annual audited returns will need to be submitted by April 30, 2026.
Regulatory compliance assessments will continue to be based on the existing instructions and no enforcement action will be taken on the non-compliance with the revised framework during the parallel run. All other instructions on the subject remain unchanged, the SBP mentioned.
Copyright Business Recorder, 2025
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