Previous Editions

According to the Economic Survey of Pakistan FY2022, the banking sector performed reasonably well during FY22 for instance, asset-base of the banking sector enlarged by 19.1 per cent (YoY) in FY2022 (19.6 per cent growth in FY21). The expansion was chiefly because of rise in investments and advances. During the period under review, advances registered robust growth with major push from domestic private advances with growth of 16.4 per cent on YoY basis.

Highlights Of The Banking Sector Industry
FY16 FY17 FY18 FY19 FY20 FY21 FY22
Key Variables (Rs. billion)
Total Assets 15,831 18,342 19,682 21,991 25,124 30058 35,796
Investments (net) 7,509 8,729 7,914 8,939 11,935 14554 18,400
Advances (net) 5,499 6,512 7,955 8,249 8,292 10121 11,818
Deposits 11,798 13,012 14,254 15,953 18,519 21720 23,461
Equity 1,353 1,381 1,406 1,658 1,862 1942 2,086
Profit Before Tax (ytd) 314 267 243 304 411 451 703
Profit After Tax (ytd) 190 158 149 171 244 264 336
Non-Performing Loans 605 593 680 761 829 860 924
Non-Performing Loans (net) 90 76 110 141 97 75 97
Key Financial Sector Indicators (per cent)
NPLs to Loans (Gross) 10.1 8.4 8 8.6 9.2 7.9 7.3
Net NPLs to Net Loans 1.6 1.2 1.4 1.7 1.2 0.7 1
Capital Adequacy Ratio (all banks) 16.2 15.8 16.2 17 18.6 16.7 17
Advances to Deposit Ratio 46.6 50.1 55.8 51.7 44.8 46.6 50.4

Deposits of the banking sector increased at relatively slower pace of 8.0 per cent on YoY basis and reached to Rs 23.5 trillion by end December-2022. Likewise, current accounts contributed 67.7 per cent raise in total deposits on YoY basis, followed by rise in rate sensitive deposits.

Asset Quality indicators of the lending portfolio enhanced as the infection ratios, like gross Non Performing Loans (NPLs) to gross loans, fell to 7.3 per cent by end December-22 from 7.9 per cent end December-21. The Ratio of net NPLs to net loans marginally grew to 0.8 per cent and the ratio of net NPLs to Capital grew to 4.6 per cent by end December-2022. However, these ratios stayed their lowest levels over the last two decades. The Solvency indicators, like Capital Adequacy Ratio (CAR), of banking sector enhanced and reached to 17.0 per cent by end December-2022 because of higher growth in regulatory capital. The Prevailing CAR was well above the domestic and international minimum benchmarks of 11.5 per cent and 10.5 per cent, respectively. With steady earnings and low NPLs and capital impairment ratio, the solvency of the banking sector remained comfortable. Financial sector development is a significant determinant of economic growth. It promotes economic growth through capital accumulation and technological progress through increasing the savings rates, mobilizing and pooling savings, producing information about investment, facilitating and encouraging the inflows of foreign capital, also optimizing the allocation of capital. Countries with well-developed financial systems tend to grow faster over long periods of time. A large body of empirical evidence suggests that the effect of financial development on economic growth is causal: financial development is not simply an outcome of economic growth but also it contributes to this growth.

Additionally, it also reduces poverty and inequality by broadening access to finance to the poor and vulnerable groups, facilitating risk management through reducing abrupt shocks, increasing investments and productivity that result in higher income generation. Financial sector development can improve the growth of small and medium sized enterprises (SMEs) through offering access to finance. Financial development can be measured through dissimilar macroeconomic variables like domestic credit to the private sector as a percentage of GDP, broad money, M2 as a percentage of GDP, and stock market capitalization as percentage of GDP, among others. However, in this survey financial depth is measured by M2/GDP ratio (in per cent), which is widely used as an indicator of financial sector deepening, where higher values represent a more developed financial sector. This ratio has witnessed a substantial raise from 36.6 per cent in FY2011 to 41.2 per cent in FY2022, indicating a gradual development of financial sector because of various reform measures by the SBP for the development of financial system in Pakistan.