Karachi December 12 2022: In view of developments over the last few years on international as well as domestic front, the requirement of Higher Loss Absorbency (HLA) capital surcharge for designated D-SIBs in the form of additional Common Equity Tier 1 (CET1) has been revised downward.
The HLA capital surcharge for designated D-SIBs, based on the bucketing approach shall be as follows:
| BUCKET | Additional CET1 Requirement |
| D | 2.5% |
| C | 1.5% |
| B | 1.0% |
| A | 0.5% |
The need for enhanced supervisory focus on ‘Systemically Important Financial Institutions’ SIFIs) gained attention in the wake of Global Financial Crisis of 2007-08. In November 2011, Basel Committee on Banking Supervision (BCBS) issued a ‘Global Systemically Important Financial Institutions (G-SIFIs) framework’ for enhancing the resilience of large financial institutions, active internationally. Later, in October 2012, the framework was extended to Domestic Systemically Important Banks (D-SIBs) with the realization that some banks might not be big enough to cause disruptions in the global economy but owing to their significant size and nature of business for domestic economy, their failure may jeopardize the overall financial stability of a country. Keeping in view the indicator based approach of BCBS and the local regulatory and supervisory requirements in perspective; State Bank of Pakistan (SBP) had developed framework for designation and supervision of D-SIBs.
The identification of D-SIBs involves two-step process. In the first step, sample banks are identified each year based on the 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.
In 2018, on the basis of the designation criteria, State Bank designated Habib Bank Ltd (HBL), National Bank of Pakistan (NBP), and United Bank Ltd (UBL) as D-SIBs.
Besides these local banks, the branches of Global-Systemically Important Banks (G-SIBs) operating in Pakistan will hold additional CET1 capital against their risk-weighted assets in Pakistan at the rate as applicable on the respective G-SIB.
