KARACHI: Pakistan’s banking sector remained resilient and well-capitalised in the first half of 2025, supported by strong deposit growth, contained credit risks, and robust capital buffers, the State Bank of Pakistan (SBP) said in its Mid-Year Performance Review of the Banking Sector (January–June 2025).
According to the central bank, the asset base of the sector expanded by 11% during the six-month period, driven largely by commercial banks’ investments in government securities. In contrast, advances to the private sector contracted, though fixed investment lending to small and medium enterprises (SMEs) continued to grow.
The SBP attributed the contraction in overall advances to both public and private segments, citing seasonal factors and the reversal of a surge in lending at the end of 2024—largely influenced by the advance-to-deposit ratio (ADR) linked tax policy and improvements in macro-financial conditions.
On the funding side, deposits grew 17.7% in H1CY25, reversing the contraction seen in the second half of 2024. This helped reduce banks’ reliance on borrowings, which remained stable during the period.
Asset quality indicators showed mixed trends. While the stock of non-performing loans (NPLs) declined, the gross NPL ratio edged up to 7.4% in June 2025 from 6.3% in December 2024 due to a contraction in the loan portfolio. However, total loan-loss provisions rose to 106.2% of NPLs, while the net NPLs to net loans ratio stood at negative 0.5%, indicating muted risk to solvency.
Profitability also strengthened on the back of higher net interest income and controlled non-interest expenses. The sector’s solvency position remained solid, with the Capital Adequacy Ratio (CAR) recorded at 21.4% by end-June, comfortably above the regulatory minimum of 11.5%.
Financial Markets See Higher Volatility
The SBP noted that domestic financial markets witnessed relatively higher volatility during the review period, largely due to fluctuations in the equity market amid U.S. tariff measures and regional geopolitical tensions.
Despite bouts of volatility, the equity market maintained upward momentum, supported by improving domestic macroeconomic conditions. Meanwhile, improved foreign exchange reserves from a current account surplus and financial inflows helped keep FX market volatility contained, while money markets functioned smoothly.
The SBP’s latest Systemic Risk Survey highlighted geopolitical risk as the most significant concern among respondents. However, overall confidence in the stability of the financial system and the regulator’s ability to manage potential shocks remained intact.
