SBP Introduces New Collateral and Eligibility Criteria for Monetary Policy Lending Operations

Islamabad, Dec 27: The State Bank of Pakistan (SBP) has announced revised collateral and eligibility criteria for its Monetary Policy Lending Operations and Mudarabah-Based Financing Facilities, effective July 2025. These measures aim to strengthen risk mitigation strategies.

Key Highlights of the New Framework:

A. Collateral Requirements

1. Haircuts on Securities:
   • The market value of government securities will be discounted using specified haircuts based on duration and volatility.
   • Formula:
     $\text{ Haircut Price}=\text{Market Price× (}1-\text{Applicable Haircut})$
2. Floating Rate Instruments:
   • Quarterly Coupons: Haircuts for up to a 3-month maturity bucket.
   • Semiannual Coupons: Haircuts for a 3 to 6-month maturity bucket.

B. Counterparty Eligibility Criteria

Institutions must meet the following conditions:

1. Regulated Entity: Supervised by SBP.
2. Current Account: Maintain an account with SBP-BSC.
3. PRISM Participation: Be part of the Pakistan Real-Time Interbank Settlement Mechanism (PRISM).
4. Financial Soundness:
   • Regular Participants: Must meet solvency (MCR, CAR) and liquidity (LCR, NSFR) requirements.
   • Watch List Participants: Non-compliant institutions face restrictions, including capped participation and assessment periods for recovery.

C. Ineligible Institutions

Entities are disqualified if they:

• Fail to meet liquidity or recapitalization requirements within prescribed timelines.
• Are declared failed under the Deposit Protection Corporation Act 2016.
• Are under resolution, liquidation, or have their licenses revoked.

Implementation Timeline

The new guidelines will take effect on July 2, 2025, allowing ample time for market adaptation. Existing instructions remain unchanged.

This enhanced framework reflects SBP’s commitment to safeguarding financial stability while maintaining robust monetary policy operations.