SBP Sets New Investment Limits for Banks
- Suggested slug: sbp-bank-investment-limits-shares-startups
- Category: Business News
- Focus keyphrase: SBP investment limits
- SEO title: SBP Sets New Investment Limits for Banks
- Meta description: The State Bank of Pakistan has capped bank stakes in firms, startups and funds at 5% of Tier-I capital, with a Rs500 million ceiling for startups.
- Tags: State Bank of Pakistan, SBP, banks, startups, fintech, mutual funds, REITs, Prudential Regulations
- Original element: explainer context: a plain-English walkthrough of how the two-part cap works, why Tier-I capital is the yardstick, and what the new formal-policy rule means for bank boards
- Sources: ProPakistani (https://propakistani.pk/2026/10/25/sbp-announces-limit-on-bank-investments-in-startups/)
- Date: Sunday, 25 October 2026 (BPRD Circular Letter No. 22 issued 23 October 2026; reported 25 October 2026)
The State Bank of Pakistan has changed how much money banks can put into shares, startups, mutual funds, real estate investment trusts (REITs) and private equity funds.
The central bank amended Regulation R-6 of its Prudential Regulations for Corporate and Commercial Banking through BPRD Circular Letter No. 22, issued on 23 October. The new limits apply to all banks and development finance institutions.
The new caps, in plain terms
For shares of any single company, a bank’s total investment must stay within the lower of two limits: 5 percent of its Tier-I capital, or 10 percent of the paid-up shares of the company it invests in. Tier-I capital is taken from the bank’s latest half-yearly reviewed or annual audited financial statements.
The same 5 percent Tier-I test applies elsewhere, but the second limit changes by asset type. For any single startup, including fintech startups, the cap is the lower of 5 percent of Tier-I capital or Rs500 million. For units of any single mutual fund, REIT or private equity fund, the limit is the lower of 5 percent of Tier-I capital or 20 percent of that fund’s units.
The two-part test matters because it binds a bank in two ways at once. The Tier-I leg stops a large bank from taking a large absolute position, while the second leg stops any bank, large or small, from owning too much of one company or fund. A bank with Rs100 billion in Tier-I capital, for example, could put at most Rs5 billion into one company’s shares under the first leg, and still could not cross 10 percent of that company’s paid-up shares under the second leg. The lower figure always wins.
Tier-I capital is the yardstick because it is the core cushion a bank holds against losses, built mainly from share capital and retained profits. Tying investment caps to it means a bank’s risk-taking grows only as its own loss-absorbing strength grows.
Banks must now have a formal policy
The State Bank has also told banks and development finance institutions to have an approved policy for equity investments. The policy must include an internal evaluation process that assesses each investment decision objectively.
That process must consider the bank’s financial standing, its overall investment portfolio, its risk appetite, the expected return, its expertise and its business strategy, including an exit plan. In practice, a bank board will now need a written answer, before it invests, to a simple question: how do we get out if this goes wrong.
Strategic investments and investments in all kinds of mutual funds and private equity funds will also count towards these limits. National Investment Trust units are excluded until the trust is privatised. The State Bank said all other instructions on the subject remain unchanged.
Why this matters for readers
For ordinary depositors, the rule is about safety rather than returns. Banks take deposits and lend them on, and equity stakes in startups and funds are riskier than loans secured against assets. A cap tied to Tier-I capital keeps any single bet small relative to the bank’s own cushion, so one bad investment cannot eat far into the money that protects depositors.
For startups, the Rs500 million single-startup ceiling sets a clear boundary on how much bank money one young firm can attract. A startup that wants more bank funding will need more than one bank at the table, which spreads the risk and forces more than one credit team to back the idea.
The move follows an earlier step this year in which the central bank gave local banks more control over foreign investment and dividends. The direction is consistent: banks get room to invest, but within written rules and hard ceilings.
