KARACHI: In a significant move to bolster financial stability and align domestic banking practices with international standards, the State Bank of Pakistan (SBP) has unveiled a comprehensive Regulatory Framework on Recovery Planning for all banks operating in the country.
This new framework sets out supervisory expectations and aims to harmonize recovery planning across the banking sector. The initiative underscores SBP’s commitment to strengthening the resilience of Pakistan’s financial system by ensuring that banks are well-prepared to manage periods of financial stress, recover from losses, and avoid failure.
The central bank has directed all banks to develop and maintain robust recovery plans that encompass a wide range of strategic options. These include measures to reduce the risk profile, conserve capital during crises, divest certain business lines, and restructure liabilities where necessary.
According to the SBP circular, these recovery plans must be tested periodically to assess their effectiveness and responsiveness to potential financial shocks. Furthermore, banks are expected to tailor their plans according to their size, operational complexity, and risk exposure, while ensuring all key components outlined in the framework are covered.
To strengthen the overall recovery and resolution regime, the SBP has also overseen recent amendments to key financial laws — namely the Banking Companies Ordinance (BCO), 1962 and the Deposit Protection Corporation (DPC) Act, 2016. These amendments grant the SBP enhanced legal authority to require banks to submit, revise, and implement recovery plans as directed.
As per the new framework, all banks — including their subsidiaries and associates — are required to submit their first Board-approved recovery plans to the relevant Banking Supervision Departments by June 30, 2026, based on audited financial statements as of December 31, 2025. Subsequently, recovery plans must be submitted annually by June 30, or within 15 days of Board approval if updated mid-year due to material changes.
Foreign bank branches operating in Pakistan must align their local recovery strategies with their global head office plans, ensuring consistency with the SBP’s guidelines. Similarly, Islamic Banking Institutions (IBIs) are instructed to ensure their recovery plans conform to Shariah principles, with clear roles outlined for their respective Shariah Boards.
Additionally, the framework mandates that contingency funding plans now be incorporated into the board-approved recovery plans, to ensure timely responses during financial distress.
The SBP has cautioned that non-compliance with these instructions will invite strict punitive action under the applicable provisions of the BCO, 1962.
This move comes as part of the central bank’s broader efforts to safeguard financial sector health and reinforce public confidence in Pakistan’s banking system.
