State Bank appreciates the resilience of Pakistan’s financial sector
According to the SBP, Pakistan’s financial sector maintained its resilience and recorded a healthy growth rate of 17.8% during CY24. Financial depth, measured as the assets-to-GDP ratio, improved to 64.8%, up from 61.7% in CY23.
Survey respondents identified
General, Macroeconomic, and Global factors as the primary risks to the
financial system.
Key Risks Identified
The top five risks currently facing
the sector, in descending order, are:
- Cybersecurity threats
- Political uncertainty
- Geopolitical risks
- A widening fiscal deficit
- Deterioration in household incomes
However, the SBP noted that risk
perceptions for these categories are expected to ease over the next six months.
Banking Sector Performance
The banking sector’s total assets
expanded by 15.8%, fueled by growth in both investments and advances. Credit to
the private sector rebounded, supported by economic recovery and reductions in
the policy rate. Tax policies linking the advance-to-deposit ratio (ADR) to the
taxation of government securities encouraged lending but slowed deposit growth,
leading to greater reliance on borrowings.
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Non-performing loans (NPLs)
improved, with the NPL-to-gross-loans ratio falling from 7.6% in December 2023
to 6.3% in December 2024. Loan-loss provisioning strengthened under IFRS-9
standards, with provisions now exceeding outstanding NPLs — signaling minimal
net credit risk. The sector’s capital adequacy ratio (CAR) rose to 20.6%, well
above regulatory requirements.
Bank earnings remained stable,
although profitability indicators showed slight moderation.
Islamic and Microfinance Banks
Islamic banks experienced strong
asset growth and continued branch expansion, reflecting SBP’s focus on
promoting Shariah-compliant finance. Their resilience remained solid. In
contrast, microfinance banks (MFBs) continued to face financial stress.
Non-Bank Financial Institutions
(NBFIs)
While Development Finance
Institutions (DFIs) saw a contraction in their balance sheets, other NBFIs
posted significant growth. The insurance sector remained stable.
Corporate Sector and Financial
Market Infrastructures
Large non-financial corporations
experienced pressure on revenues and moderate earnings, but their liquidity and
debt repayment capacity remained sound. The credit quality of major bank
borrowers stayed stable.
Financial Market Infrastructures
(FMIs) continued to operate smoothly. Raast, SBP’s digital payment platform,
sustained strong transaction growth, particularly after launching its
Person-to-Merchant (P2M) module in late 2023. Additionally, the SBP signed a
Memorandum of Understanding (MoU) with the Arab Monetary Fund to connect Raast
with Buna for cross-border remittances.
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Outlook and Stress Testing
Stress testing confirmed that banks
could absorb severe hypothetical shocks over a three-year period while
maintaining capital adequacy above minimum thresholds. The SBP emphasized the
need for continued structural reforms to support sustainable growth and
mitigate external financing risks.
Looking ahead, the SBP reaffirmed
its commitment to maintaining financial stability by remaining vigilant against
emerging risks and strengthening its regulatory and supervisory frameworks.
Source: Pro Pakistani