Karachi – In a significant step toward strengthening the resilience of Pakistan’s financial ecosystem, the State Bank of Pakistan (SBP) has introduced a detailed Regulatory Framework on Recovery Planning. This initiative aims to align domestic banking practices with international regulatory benchmarks and better equip the country’s financial institutions to manage and recover from episodes of economic stress.
The newly announced framework outlines supervisory expectations for all banks operating in Pakistan, calling for the establishment of well-structured recovery plans. These plans are intended to act as early intervention tools, helping institutions reduce risk exposure, stabilize operations during distress, and minimize the likelihood of systemic failure. This development reflects SBP’s ongoing commitment to preserving financial sector stability and maintaining depositor confidence in an increasingly volatile global economic landscape.
Banks are now required to design recovery strategies that are not only comprehensive but also proportionate to their size, operational complexity, and risk profile. Key components of the framework include actionable steps to conserve capital, restructure liabilities, divest non-core operations, and access contingency funding mechanisms. SBP has stressed that these plans must be stress-tested regularly to ensure their practical effectiveness against hypothetical crisis scenarios.
In tandem with this regulatory overhaul, SBP has spearheaded amendments to foundational financial legislation, namely the Banking Companies Ordinance (BCO) of 1962 and the Deposit Protection Corporation (DPC) Act of 2016. These legislative revisions empower the central bank to demand submission, modification, and enforcement of recovery plans, thereby tightening oversight on risk governance and contingency readiness across the sector.
Under the new framework, all licensed banks — including their subsidiaries and affiliated entities — must submit Board-approved recovery plans to the relevant Banking Supervision Departments by June 30, 2026. These submissions are to be based on audited financial data as of December 31, 2025, and are required annually thereafter. Any mid-year updates triggered by material business changes must also be submitted within 15 days of Board approval.
Foreign banking institutions with operations in Pakistan are expected to align their local recovery planning protocols with their global headquarters’ strategies, ensuring conformity with both international standards and SBP’s guidelines. Likewise, Islamic Banking Institutions (IBIs) must ensure their recovery plans comply with Shariah principles, incorporating formal reviews by their respective Shariah governance boards.
Additionally, the framework makes it mandatory for all recovery plans to include contingency funding strategies — a critical provision that allows banks to mobilize liquidity quickly during financial stress, preserving solvency and operational continuity.
SBP has issued a clear warning that failure to comply with these new regulations will result in stringent enforcement measures under the provisions of the BCO, 1962.
This regulatory move is part of a broader effort by SBP to preemptively address vulnerabilities in the banking sector and support sustainable economic governance. As financial systems face increasing unpredictability, such frameworks ensure that institutions in Pakistan are not only reactive but proactively resilient in the face of emerging risks.