KARACHI: The State Bank of Pakistan has developed a regulatory and supervisory infrastructure to ensure adequacy of risk identification, measurement and mitigation both at banking system and individual/institution level, said the Annual Performance Review 2014-15 issued on Friday.

SBP’s review states that the central bank makes concerted efforts to promote financial stability, efficiency, consumer confidence and market discipline in the banking industry.

It further notes that the regulatory and supervisory framework is largely at par with international best practices and Basel core principles of effective supervision.

The central bank continuously endeavours to strengthen this framework to cope with the challenges posed by the dynamic local and global environment.

The SBP issued Basel III instructions for implementation in Pakistan in August 2013 in the light of the Basel III reform package introduced by the Basel Committee on Banking Supervision (BCBS).

During the year, SBP introduced disclosure templates released by BCBS for capital adequacy purposes. The templates aim to enhance consistency and comparability of banks’ capital related disclosures.

Moreover, the regulatory capital adequacy reporting formats have been automated on Data Acquisition Portal (DAP) to improve efficiency of the supervisory process.

The capital adequacy framework for Microfinance Banks (MFBs) was also revised in line with international best practices and Basel Capital Framework, said the report.

The review notes that the Minimum Capital Requirement (MCR) for Islamic banking subsidiary to promote Islamic banking and encourage conventional banks to upscale their Islamic banking window operations into Islamic banking subsidiaries was revised downward to Rs6 billion, provided the subsidiary gives plans to raise its capital (net of losses) to Rs10bn within 5 years.

The revision defines a road map for Islamic banking windows to graduate into independent subsidiaries to better serve their faith sensitive clientele. It will also be instrumental in further accelerating Islamic banking growth as the subsidiaries will significantly increase their branch network to leverage the enhanced capital base.

The corporate governance regime of the banking industry was further strengthened during the year to bring it at par with international standards and best practices. Banks and development finance institutions (DFIs) were advised to conduct prior self-assessment of their prospective directors, CEOs and key executives and furnish an undertaking to SBP in this regard.

The chairmen of the boards of banks/DFIs were made ineligible to become members of board committees such as audit, risk management, credit, recruitment and remuneration, said the report.

To enhance the role of independent directors, the banks/DFIs were advised that board’s audit committee would invariably be chaired by an independent director.

Published in Dawn, October 31st, 2015

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