SBP begins Basel III Phase II implementation

September 25, 2025 (MLN): The State Bank of Pakistan has developed revised instructions on the Standardized Approach for Credit Risk as the first step toward adopting Basel III Phase II reforms.

These revised instructions will be implemented across the industry on a parallel run basis from September 30, 2025 to June 30, 2026 covering four quarters.

During the parallel run, banks, Digital Banks and DFIs shall submit capital adequacy returns under both existing and revised instructions.

Under existing instructions, quarterly returns are due 14 working days from quarter-end and annual audited returns within 3 months from year-end.

Under revised instructions, quarterly returns are due by end of the month following the quarter-end and annual audited returns by April 30, 2026.

The State Bank emphasized that regulatory compliance assessments will continue to be based on the existing instructions and no enforcement action will be taken on non-compliance with the revised framework during the parallel run.

The Global Financial Crisis 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 to address shortcomings of the pre-crisis regime and strengthen the resilience of the banking sector.

The reforms are broadly divided into two phases, with Phase I focusing on enhancing capital adequacy, introducing liquidity and leverage ratios, and establishing the D-SIB framework, while Phase II emphasizes revisions to the risk-weighting regime, leverage ratio, and other enhancements.

The State Bank has already implemented Phase I reforms and this parallel run approach will allow SBP to assess practical challenges and incorporate industry feedback, if required, for final implementation.

These instructions build upon previous guidelines including BSD Circular No. 8 of June 27, 2006, and BPRD Circular No. 6 of August 15, 2013, regarding implementation of Basel Capital Adequacy Framework in Pakistan.

Copyright Mettis Link News