KARACHI, Oct 25 (Focus Pakistan) — The SBP 1000% risk weight rule could force Pakistani banks to hold substantially more regulatory capital against certain mutual fund and private equity investments, potentially limiting money available for lending. The State Bank of Pakistan introduced the fallback treatment through BPRD Circular Letter No. 21 of 2026, dated October 23, with implementation scheduled for December 31.
The arithmetic
Under the fallback, a Rs1 billion stake translates into Rs10 billion of risk-weighted assets. Pakistani banks must maintain capital of at least 10% of risk-weighted assets, with buffers on top. At that floor, the stake would tie up Rs1 billion of capital in gross terms.
The net effect varies by bank. It depends on the risk weight the bank applied to the same holding before, and on the buffers it must carry.
No money leaves the bank, and nobody collects a 1,000% levy. But capital held against a fund cannot back new loans.
Below the global benchmark
SBP says the revision keeps its rules aligned with the Basel Committee on Banking Supervision. Yet Pakistan’s central bank adopted a lower fallback figure than Basel itself. Under the Basel framework, a bank that cannot use either the look-through or mandate-based approach must apply a 1,250% risk weight to its equity investment in the fund. SBP’s version applies 1,000% in the same situation.
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The circular offers no reason for the 250-percentage-point gap.
Three routes, in order
Lenders start with the look-through approach. They price a fund’s underlying assets as if they held them directly. To qualify, the fund must supply enough detail, at least as often as the bank reports its own accounts, with checks by an independent party such as the custodian or the depository. A bank that relies on a third party’s calculations must apply risk weights 1.2 times higher than normal.
When that data falls short, banks move to the mandate-based approach. It draws on the fund’s mandate, the law governing it, or reliable public sources. The bank assumes the fund has invested as much as its offering document allows in the assets that attract the highest capital charge, then in progressively safer ones.
That second route matters. Missing portfolio data alone does not push a holding into the 1,000% bucket. A bank reaches the fallback only when it cannot use either method.
Leverage and layers
SBP also targets borrowing inside funds. Under both preferred methods, banks must multiply the fund’s average risk weight by its leverage, measured as total assets over total equity. The result cannot exceed 1,000%.
Funds that invest in other funds face tighter rules the deeper the chain runs. Beyond the second layer, a bank can look through only if it looked through at the layer above. Otherwise the fallback applies.
REITs keep their 100%
SBP retains a separate treatment for real estate investment trusts. Banks must keep REIT holdings in the banking book at a 100% risk weight, the rule SBP set in June 2021. The 2021 circular said SBP might review the treatment after five years. More than five years on, SBP has kept it.
A companion circular issued the same day, BPRD Circular Letter No. 22, caps a bank’s holding in any single mutual fund, REIT or private equity fund at the lower of 5% of its Tier-I capital or 20% of the fund’s units. One rule decides how much a bank may invest. The other decides how much capital must sit behind it.
The year-end test
SBP gives no estimate of affected holdings or of any extra capital the industry may need. Banks now have until December 31 to show what their funds hold, or what those funds are allowed to hold.
