SBP tightens rules for monetary policy lending

December 26, 2024 (MLN): The State Bank of Pakistan (SBP) has updated risk mitigation measures for its Monetary Policy Lending Operations and Mudarabah-based Financing Facilities, including Open Market Operation (OMO) injections and the Standing Ceiling Facility, effective from July 2, 2025.

Collateral Requirements

To enhance risk management, the SBP has updated its haircut rates on government securities offered as collateral. Haircuts will range from 0.2% for securities with up to three months of maturity to 10% for those with maturities exceeding 10 years.

Floating-rate instruments, such as PIBs and GIS, will also be subjected to haircuts based on their coupon payment frequency.

Counterparty Eligibility Criteria

The SBP has introduced stringent criteria for institutions seeking financing under its operations. To qualify, institutions must:

1. Be regulated by the SBP.
2. Maintain a current account with SBP-BSC.
3. Participate in the Pakistan Real-Time Interbank Settlement Mechanism (PRISM).

Institutions will be categorized based on their financial soundness:

• Regular Participants: Compliant with capital and liquidity standards prescribed by the SBP.
• Watch List Participants: Institutions temporarily non-compliant with capital or liquidity requirements. Limited participation will be allowed for a grace period of up to three months, subject to recovery plans.
• Ineligible Institutions: Those failing to meet compliance within grace periods or falling under regulatory distress, including liquidation or license revocation.

*The outstanding amount shall be capped and no incremental financing shall be extended.

During this period for participation with limitation, SBP will assess whether the institution’s breach is temporary and resolvable depending upon the nature of the breach and the effectiveness of the recovery plan.

In case the SBP determines that the breach is not temporary and resolvable, SBP will instantly suspend the facilities and advise the institution about its ineligibility.

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