KARACHI: The State Bank of Pakistan (SBP) has designated three banks as Domestic Systemically Important Banks (D-SIBs) for the year 2019 to enhance capital adequacy monitoring of the banking system, a statement said on Thursday.
“In line with D-SIBs framework, the central bank has carried out the annual assessment on the basis of financials of end December 2018,” the SBP said in a statement. The SBP said as per this assessment, three banks i.e., Habib Bank Ltd (HBL), National Bank of Pakistan (NBP), and United Bank Ltd (UBL) had been designated as D-SIBs for the year 2019.
It added that these banks would be subject to enhanced supervisory requirements and following higher capital surcharge in the form of additional common equity tier-1 capital (CET-1) with effect from March 31, 2020.
The NBP and the HBL will be required to maintain additional CET-1 of 2 percent with UBL 1 percent by the end of the first quarter of next year, the central bank said. Additional CET-I requirement will be enforced through a “Bucket” mechanism from A to D class, (“D” being the highest additional requirement class) - based on the significance of the bank to the banking system i.e., the more significant, the higher the additional CET-I requirement to be imposed.
The central bank has assigned class “C” to NBP and HBL, while class “A” to UBL. Besides, 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 principal G-SIB, the state bank said.
The D-SIBs framework introduced by the State Bank in April last year is consistent with the international standards and practices and takes into account the local dynamics. It specifies the methodology for the identification and designation of D-SIBs, enhanced regulatory and supervisory requirements, and implementation guidelines. These enhanced requirements aim to further strengthen the resilience of the Systemically Important banks against shocks and to augment their risk management capacities.
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, D-SIBs are designated from among the sample banks on the basis of institutions’ systemic score in terms of their size, interconnectedness, substitutability, and complexity.