Resources for Basel II Capital Accord (Basel II)

Banks asked to adopt standardised approaches

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The State Bank of Pakistan (SBP) has directed banks/development financial institutions (DFIs) to adopt standardised approaches for credit and market risk and basic indicator for operational risk besides adopting a two-year parallel run for internal ratings board (IRB) from January 1, 2008.

The SBP in its BSD circular No1, issued on Tuesday, said the SBP instructions further require that adoption of Foundation or Advanced IRB for Credit and Internal Models Approaches for market risk will be subject to the prior written approval of State Bank, and banks/DFIs were advised to approach the State Bank for necessary approval.

The SBP directed banks/DFIs that the standardised approach will become effective from January 1, 2008, and the banks/DFIs should report their capital adequacy accordingly. However, they should also continue to submit their calculations based on Basel I until such time as the SBP issues instructions to terminate the same.

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