Macro Analysis /

Pakistan Banks: Central bank announces relief package for borrowers

  • SBP announces reduction in Capital Conservation Buffer (CCB) to 1.5%; positive for HBL

  • Principle repayment on loans to be defered by one year; this may initially stretch liquidity for banks

  • Regulatory criteria for loans restructuring/rescheduling temporarily relaxed

Yusra Beg
Yusra Beg

Senior Investment Analyst

Raza Jafri
Raza Jafri

Executive Director, Research

Intermarket Securities
27 March 2020

The State Bank of Pakistan (SBP), in collaboration with the Pakistan Bankers Association (PBA), has announced a relief package for stakeholders affected by the Covid-19 outbreak. Salient measures include the following:

Reduction in Capital Conservation Buffer (CCB) to 1.5%

In order to create additional liquidity for banks, the SBP has reduced the Capital Conservation Buffer (CCB) from 2.5% to 1.5%. This should enable banks to lend up to PKR800bn, or c10% of outstanding loans. We flag that most banks have adequate buffers in place against the minimum CAR requirement, but HBL is close to the minimum (after D-SIB requirements).

Principal repayment on loans to be deferred by one year 

Banks are instructed to defer principal repayment on advances by one year, upon a written request from the borrower, provided interest payments are being serviced. This facility, available up till 30 June 2020, will prevent NPL classification and protect interest income on the P&L. In addition, if the borrower is unable to service the interest payments or requires deferment for a period exceeding one year, such loans will continue to be treated as regular provided the rescheduling/restructuring is done within 180 days of the loans being past due. Other changes include relaxing the classification criteria for trade bills and allowing borrowers to avail financing (up to one year) against the shares issued by group companies.

Presently, total credit to non-government sector by scheduled banks stands at 55% of total advances. MCB and BAFL have the highest exposure to the private sector within our coverage. The total amount of principal coming due over the next year is about PKR4,700bn (more than 50% of the outstanding loans in the system). If a large portion of principal dues come in for deferral, it may potentially impact liquidity for the sector, with banks with high ADR likely to be more affected. Most banks in our coverage have low ADRs of less than 50% (BAFL – at 65% – has the highest ADR in our coverage).