To enhance risk mitigation and ensure robust operational practices, the State Bank of Pakistan (SBP) has announced updated collateral and eligibility criteria for its Monetary Policy Lending Operations and Mudarabah-Based Financing Facilities. These changes, effective July 2, 2025, aim to fortify financial stability and transparency across lending operations.
🔑 Key Updates at a Glance
1. Collateral Requirements
SBP introduces a structured haircut policy on government securities based on residual maturity, as detailed below:
| Maturity Bucket (Residual) | Applicable Haircut (%) |
|---|---|
| Up to 3 months | 0.2% |
| > 3 months to ≤ 6 months | 0.4% |
| > 6 months to ≤ 9 months | 0.6% |
| > 9 months to ≤ 1 year | 1.0% |
| > 1 year to ≤ 3 years | 2.0% |
| > 3 years to ≤ 5 years | 3.5% |
| > 5 years to ≤ 7 years | 5.0% |
| > 7 years to ≤ 10 years | 7.0% |
| > 10 years | 10.0% |
Floating Rate Instruments:
- Quarterly coupon: Haircut aligns with ≤ 3-month bucket.
- Semi-annual coupon: Haircut aligns with > 3 to ≤ 6-month bucket.
2. Eligibility Criteria for Institutions
To qualify for SBP’s lending operations, institutions must meet the following criteria:
- Be a regulated entity under SBP.
- Maintain a current account with SBP-BSC.
- Be a participant of PRISM (Pakistan Real-Time Interbank Settlement Mechanism).
Institution Categories:
| Category | Requirements |
|---|---|
| Regular Participants | Compliance with SBP’s solvency (CAR, MCR) and liquidity (LCR, NSFR) requirements. |
| Watch List | Non-compliance with capital or liquidity requirements. Limited eligibility for roll-over financing (grace period: 1-3 months). |
Ineligible Institutions:
- Institutions unable to restore compliance within the grace period.
- Declared failed, under liquidation, or with revoked licenses.
What This Means for the Market
These updated criteria emphasize risk management, stability, and sound financial practices, ensuring the integrity of SBP’s operations. Stakeholders are advised to align their practices to remain compliant by the July 2025 implementation date.
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