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The State Bank of Pakistan (SBP) has formally released the list of Domestic Systemically Important Banks (D-SIBs) for the year 2025, reaffirming its commitment to safeguarding the country’s financial system.
In line with the Framework for Domestic Systemically Important Banks, originally published in April 2018 and updated in December 2022, SBP identified National Bank of Pakistan (NBP), United Bank Limited (UBL), and Habib Bank Limited (HBL) as D-SIBs for the upcoming year.
The central bank emphasized that the framework is aligned with global regulatory practices but tailored to Pakistan’s economic and financial circumstances. By designating D-SIBs, SBP aims to ensure that banks considered “too important to fail” are subject to stricter oversight, higher capital requirements, and more robust risk management practices.
Understanding D-SIBs and their importance
D-SIBs are banks whose failure could pose significant risks to the overall stability of a country’s financial system due to their size, interconnectedness, substitutability, and complexity.
The designation compels these banks to build stronger capital buffers, adopt enhanced risk management frameworks, and face intensified supervisory scrutiny. Such requirements are meant to minimize the likelihood of their collapse and contain potential systemic shocks.
This is particularly crucial in emerging economies like Pakistan, where the banking sector plays a central role in channeling savings, financing businesses, and supporting economic growth.
How SBP identifies D-SIBs
According to SBP’s framework, the designation of D-SIBs follows a two-step annual process:
- Sample Identification: Banks are shortlisted using quantitative and qualitative criteria such as asset size, interbank exposures, substitutability in payments, and market share.
- Systemic Score Assessment: Composite systemic scores are calculated to measure each bank’s systemic importance. Based on these scores, banks are allocated into different buckets, which determine the level of additional capital requirement.
For the 2025 cycle, SBP conducted its assessment based on banks’ financial statements as of December 31, 2024.
NBP, UBL, and HBL declared systemically important
Following the evaluation, SBP announced that NBP, UBL, and HBL are to be treated as systemically important banks for 2025.
The additional Common Equity Tier-1 (CET-1) capital requirements, effective from March 31, 2026, have been set as follows:
- National Bank of Pakistan (NBP): 2.5% (Bucket D)
- United Bank Limited (UBL): 1.5% (Bucket C)
- Habib Bank Limited (HBL): 1.5% (Bucket C)
These capital surcharges are over and above the standard Basel III requirements and reflect the higher systemic importance of these institutions.
G-SIB branches in Pakistan to follow global capital rules
In addition to local banks, SBP also outlined requirements for the branches of Global Systemically Important Banks (G-SIBs) operating in Pakistan.
Such branches will now be required to maintain additional CET-1 capital buffers against their risk-weighted assets in Pakistan, at the rates prescribed by the Financial Stability Board (FSB) for their parent G-SIB institutions.
This measure is intended to ensure that multinational banks active in Pakistan adhere to global prudential standards and remain resilient to shocks.
Strengthening resilience against shocks
By imposing higher regulatory requirements on D-SIBs, SBP seeks to strengthen the shock-absorption capacity of banks that hold the most systemic risk.
The capital surcharges will provide these institutions with an extra cushion to withstand financial crises, market volatility, or sudden economic disruptions. Additionally, D-SIBs are subject to enhanced supervisory monitoring, including more frequent stress testing, risk assessment, and compliance reviews.
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SBP stressed that these steps are not only aimed at protecting the banking sector but also at safeguarding depositors and promoting confidence in the financial system.
SBP’s proactive approach to financial stability
The designation of D-SIBs is part of SBP’s broader strategy to strengthen the regulatory and supervisory framework of Pakistan’s financial system.
In its statement, the central bank said:
“The designation of Domestic Systemically Important Banks is one of the key elements of the supervisory framework and reflects SBP’s proactive approach to the identification and mitigation of systemic risks.”
This proactive stance is particularly important at a time when Pakistan’s economy faces challenges such as high inflation, fiscal constraints, and external financing pressures. Ensuring that the largest banks remain resilient is central to preserving financial stability and supporting sustainable growth.
Implications for the banking sector
For NBP, UBL, and HBL, the designation as D-SIBs carries both responsibilities and reputational benefits.
- Responsibilities: They must meet higher CET-1 capital requirements, adopt stronger governance, and face closer scrutiny.
- Benefits: The designation signals their critical role in Pakistan’s economy, potentially strengthening investor and depositor confidence.
Financial analysts suggest that while the additional capital requirements may slightly reduce banks’ short-term profitability, they are likely to improve long-term stability and resilience.
Conclusion
The SBP’s announcement of NBP, UBL, and HBL as D-SIBs for 2025 underscores the central bank’s determination to fortify Pakistan’s financial architecture.
By aligning with international best practices while accommodating local realities, SBP is ensuring that the country’s most important banks remain strong, resilient, and capable of supporting the broader economy through turbulent times.
As the March 2026 deadline approaches, the spotlight will remain on these banks to demonstrate compliance and readiness for their enhanced role in the financial system.
