Karachi, July 30, 2025 – The State Bank of Pakistan (SBP) has issued a comprehensive regulatory framework to guide banks in developing robust recovery planning mechanisms aimed at safeguarding financial stability during periods of distress.
According to the SBP, the primary objective of recovery planning is to ensure that banks are adequately prepared to manage financial stress, stabilize their operations, restore financial health, and ultimately avoid failure. This move is part of SBP’s broader strategy to strengthen the financial sector’s resilience and enhance its capacity to respond to systemic shocks.
The SBP stated that each bank must develop and maintain a recovery plan tailored to its business model and risk profile. These plans should outline a variety of recovery options, such as capital conservation measures, cost-cutting initiatives, liability restructuring, or even the strategic sale of certain business units. In addition, banks are expected to regularly test their recovery plans to assess effectiveness and feasibility under different stress scenarios.
As part of the initiative, recent amendments to key laws—namely the Banking Companies Ordinance (BCO), 1962, and the Deposit Protection Corporation (DPC) Act, 2016—have granted SBP legal authority to demand the submission of recovery plans. These changes empower the central bank to oversee the design, updating, and implementation of such plans, while also removing legal or operational barriers that could hinder their execution.
To promote uniformity and align local practices with international standards, the SBP’s new framework establishes clear supervisory expectations for recovery planning across all banks operating in Pakistan. This includes group-wide plans that cover subsidiaries and associated entities, wherever applicable.
Banks are required to submit their first Board-approved Recovery Plans to the SBP’s relevant supervision departments by June 30, 2026, based on audited financial statements as of December 31, 2025. Thereafter, updated plans must be submitted annually by June 30 or within 15 days of Board approval if significant changes occur mid-year.
This proactive step by the SBP is a critical element of long-term financial sector planning, enhancing both the readiness and resilience of banks through structured recovery procedures.