The State Bank of Pakistan (SBP) has officially revised the Foreign Exchange Exposure Limit (FEEL) framework for Authorized Dealers (ADs), reflecting a more adaptive approach in line with changing market conditions and trade dynamics.
According to a formal notification issued by the central bank, FEEL for all Authorized Dealers will now be determined as 7.5% of each institution’s Tier-1 Capital, based on their latest annual audited financial statements. This move signifies SBP’s intent to align regulatory exposure thresholds with the financial strength and capital adequacy of each dealer, ensuring a risk-based and institution-specific exposure management model.
The revised framework is set to take effect from August 4, 2025. Each Authorized Dealer will receive an individual communication from SBP, specifying its updated FEEL allocation in accordance with its Tier-1 Capital position. This tailored approach enables institutions to better manage their foreign exchange exposures in proportion to their capital buffers, improving risk controls across the banking sector.
Previously, the Foreign Exchange Exposure Limit was governed by a uniform threshold mechanism. However, the dynamic growth in trade volumes, foreign exchange transactions, and increased volatility in currency markets have compelled the regulator to introduce a more nuanced model. The revised limit structure allows for greater flexibility and reinforces prudential oversight while also accommodating the growing complexity of Pakistan’s forex landscape.
By tying exposure limits to Tier-1 Capital, SBP is adopting a more granular and systemic risk mitigation strategy. This step is particularly significant as banks and dealers continue to play a critical role in managing foreign exchange inflows and outflows for trade financing, remittances, and investment flows. The new structure ensures that institutions with stronger capital bases can manage higher exposures without putting the broader financial system at risk.
Industry experts see the revision as a balanced approach that supports market stability while maintaining sufficient room for business growth. With ongoing volatility in the global foreign exchange markets and increasing reliance on foreign currency operations within the Pakistani banking sector, effective management of forex exposure is vital for safeguarding financial soundness.
It is important to note that all other instructions and compliance obligations related to FEEL remain unchanged. The revision is limited to the calculation method for exposure limits and does not affect the reporting or procedural framework currently in place.
Market participants and treasury professionals across the banking sector are now preparing for the implementation of the revised limits. Internal system recalibrations, capital planning, and treasury strategy reviews are underway as banks align their operations with the updated SBP directive.
This recalibration of FEEL comes at a time when Pakistan’s foreign exchange regime is under close scrutiny amid efforts to stabilize reserves, support trade financing, and manage exchange rate pressures. The SBP’s move is seen as part of a broader regulatory toolkit designed to ensure that exposure to currency risk remains proportionate, transparent, and within safe capital thresholds.