Pakistan’s Financial Sector Maintained Performance and Resilience in 2024: SBP

The State Bank of Pakistan (SBP) has issued its annual flagship publication, the Financial Stability Review (FSR) for CY24. SBP said Pakistan’s financial sector continued to maintain its resilience and managed to grow at a decent pace of 17.8 percent in CY24. The financial depth—assets to GDP ratio—moved up to 64.8 percent from 61.7 percent in CY23. The respondents, on aggregate, perceive risks emanating from General, Macroeconomic, and Global categories to be the major risks to the financial system. In terms of key risks at present, the top five risks (in descending order) are those coming from Cyber Security, Political Uncertainty, Geopolitical Risk for Pakistan, Widening Fiscal Deficit, and Deterioration in Household Income. Over the next six months, risk perceptions regarding these categories are expected to subside in general. The banking sector’s total assets expanded by 15.8%, driven by increases in both investments and advances. Credit to the private sector rebounded due to economic recovery and policy rate cuts. A tax policy linking the advance-to-deposit ratio (ADR) to taxation on government securities encouraged lending but discouraged deposit growth, increasing reliance on borrowings. Non-performing loans (NPLs) to gross loans dropped from 7.6% in December 2023 to 6.3% in December 2024. Loan-loss provisioning improved under IFRS-9, with provisions exceeding outstanding NPLs—indicating minimal net credit risk. The capital adequacy ratio (CAR) rose to 20.6%, well above the regulatory minimum. Bank earnings remained steady, though profitability indicators slightly moderated. Islamic banks saw strong asset growth and branch expansion, aligning with SBP’s focus on Shariah-compliant finance. Their resilience remained intact. In contrast, microfinance banks (MFBs) continued to face financial stress. DFIs saw balance sheet contraction, while NBFIs experienced notable growth. The insurance sector posted stable results. Large non-financial corporates faced revenue pressure and moderate earnings, but their liquidity and repayment capacity remained sound. Credit quality of major bank borrowers remained steady. Financial Market Infrastructures (FMIs) operated smoothly. Raast, SBP’s digital payment system, sustained strong transaction growth, especially after launching its Person-to-Merchant module in late 2023. SBP also signed an MoU with the Arab Monetary Fund to link Raast with Buna for cross-border remittances. Stress test results confirm that banks can absorb severe hypothetical shocks over a three-year horizon and will stay above the minimum CAR threshold. SBP emphasized the importance of structural reforms to sustain growth and mitigate external financing risks. SBP pledged to maintain financial stability by staying alert to emerging risks and enhancing its regulatory and supervisory framework.