In a decisive move aimed at strengthening the banking sector’s preparedness for financial disruptions, the State Bank of Pakistan (SBP) has formally directed all banks operating in the country to develop and maintain comprehensive, group-wide recovery plans. This directive is part of a new regulatory framework designed to help banks recover from financial losses, ensure continuity during crises, and ultimately avoid institutional failure.
The SBP’s framework applies across the entire banking landscape and extends to cover not just the parent banks but also their subsidiaries and affiliated entities. These recovery plans are expected to serve as critical tools in managing stress scenarios, restoring financial health, and preserving public confidence in the financial system. While the framework allows banks to scale and tailor their recovery strategies according to their operational complexity and risk exposure, certain foundational components must be uniformly incorporated.
Foreign banks operating within Pakistan are required to align their domestic recovery strategies with their global head office plans to maintain regulatory consistency. Similarly, Islamic Banking Institutions (IBIs) must develop Shariah-compliant recovery plans with explicit involvement of their respective Shariah Boards to ensure religious and regulatory adherence.
The latest initiative also integrates and updates provisions from earlier guidelines such as BSD Circular No. 07 of 2003, which had originally mandated contingency funding plans. These are now formally embedded within the broader recovery planning structure. Under the updated requirements, contingency measures must be board-approved and embedded within the overarching recovery frameworks to provide rapid, structured responses during severe financial stress.
Each recovery plan must outline a spectrum of actionable recovery options, including capital conservation strategies, risk exposure reduction, liability restructuring, and potential divestment of non-core business units. Moreover, the plans must be regularly tested to validate their effectiveness and responsiveness under adverse conditions.
Banks have been instructed to submit their first board-approved recovery plans by June 30, 2026, based on audited financials for the year ending December 31, 2025. Following this initial submission, institutions will be required to submit updated plans annually or within 15 days of Board approval if changes are made during the year due to significant organizational or financial developments.
The SBP has also taken legislative steps to support this policy rollout. Amendments to the Banking Companies Ordinance (1962) and the Deposit Protection Corporation Act (2016) have empowered the central bank with the legal authority to require, review, and enforce recovery plans, removing barriers that may hinder effective implementation.
In alignment with international standards and regulatory best practices, the framework demands that each recovery plan contain a detailed assessment of the bank’s business model, identify key business lines, and highlight critical operations essential to both domestic and cross-border functionality. Banks must present a clear breakdown of activities that are vital for revenue generation and operational continuity.
This regulatory shift represents a major advancement in Pakistan’s financial oversight mechanisms. As global financial systems grow more interconnected and vulnerable to shocks, SBP’s move to institutionalize recovery planning reinforces the foundation for a more resilient, transparent, and responsive banking ecosystem.