ISLAMABAD – The State Bank of Pakistan (SBP) has released the Mid-Year Performance Review of the banking sector for January to June 2025. The report highlights the sector’s resilience, growth in assets, and overall financial stability despite challenges in credit expansion.
According to the review, the banking sector expanded its asset base by 11 percent during the first half of 2025. Much of this growth came from investments in government securities, reflecting increased reliance of the government on banks. In contrast, advances to both public and private sectors contracted, though fixed investment lending to SMEs continued to rise. Deposits grew strongly at 17.7 percent, reducing the sector’s dependence on borrowings.
The SBP report noted that credit risk in the banking sector remained contained. Non-performing loans (NPLs) declined in absolute terms. However, due to reduced advances, the gross NPL-to-loans ratio inched up to 7.4 percent by June 2025. On a positive note, higher provisioning brought the net NPL ratio down to negative 0.5 percent, reflecting limited risks.
Earnings remained steady as banks benefited from higher volumes of income-generating assets. Return on Assets (ROA) stood at 1.3 percent, while Return on Equity (ROE) was recorded at 21.3 percent, both stable compared to December 2024. The solvency position also improved, with the Capital Adequacy Ratio (CAR) rising to 21.4 percent, well above the regulatory minimum of 11.5 percent.
Stress test results indicated that the CAR would remain comfortably above requirements even under severe macro-financial stress scenarios. This underlines the strong resilience of Pakistan’s banks against potential shocks in credit and market risks.
While financial markets showed higher volatility in early 2025 due to tariff-related uncertainties and geopolitical tensions, independent experts in the SBP’s Systemic Risk Survey expressed confidence in the regulator’s ability to manage risks. Geopolitical challenges were highlighted as the top concern, but the overall stability of the system remained unquestioned.
The review reaffirms that Pakistan’s banking sector is well-capitalized, stable, and capable of supporting economic activity despite external pressures.
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