The State Bank of Pakistan (SBP) has introduced a significant revision to the Foreign Exchange Exposure Limit (FEEL) framework for banks operating in the country, aiming to modernize the management of foreign exchange risk in line with current market needs. The move reflects a broader regulatory shift toward a more capital-sensitive and responsive model for managing foreign exchange operations.
In an official circular issued on August 1, 2025, the central bank announced that the revised FEEL will take effect from August 4, 2025. Under the new structure, each bank’s foreign exchange exposure limit will be calculated as 7.5% of its Tier-1 Capital, based on its latest audited financial statements. This recalibration is designed to offer banks—referred to as Authorized Dealers (ADs)—greater operational flexibility to meet rising demands and trade volumes in the evolving foreign exchange landscape.
This update marks a departure from the previous framework implemented in July 2020. Under that model, the exposure ceiling was defined as 25% of a bank’s Paid-up Capital (free of losses), subject to a maximum cap of PKR 5 billion. Additionally, the SBP had the discretion to assign reduced exposure limits to specific banks depending on their behavior in the foreign exchange market.
The revised approach abandons the fixed cap model in favor of a dynamic calculation tied directly to a bank’s capital base. By anchoring exposure limits to Tier-1 Capital, the SBP seeks to improve alignment with a bank’s actual financial strength and its capacity to absorb foreign exchange risk. This change is expected to offer banks a more scalable and realistic framework as they manage their FX transactions, helping them better navigate volatility and liquidity conditions.
The SBP has also clarified that all other instructions related to the FEEL framework—except for the method of limit calculation—will remain unchanged. This ensures continuity while implementing a more targeted risk management mechanism that reflects international best practices and regulatory evolution.
This strategic update aligns with the central bank’s broader objectives of maintaining financial stability, enhancing market discipline, and fostering a transparent and robust foreign exchange environment. It is part of SBP’s ongoing efforts to refine the regulatory ecosystem in response to macroeconomic changes and global financial developments.
The recalibrated limit will be communicated individually to each bank, based on its specific Tier-1 Capital, allowing institutions to plan and adjust their foreign exchange operations accordingly. This personalized and adaptive approach is expected to support better liquidity management and contribute to a more efficient and resilient foreign exchange market in Pakistan.
As the financial ecosystem becomes increasingly complex and globally integrated, such regulatory reforms underscore the SBP’s intent to align Pakistan’s banking sector with global standards, encouraging responsible growth and innovation within the financial markets.