- Pakistan’s banking sector showed resilience with robust capital buffers, growing deposits, and steady solvency position
Experts revealed that the global banking sector is crucial for economies because it facilitates financial intermediation, efficiently moving money from savers to borrowers, enabling investment, economic growth, and job creation. Banks provide essential credit for businesses, infrastructure, and innovation, promote financial inclusion, help countries manage economic shocks, and support international trade by speeding up payments across borders. A healthy and well-regulated banking system is a backbone for economic development, leading to greater prosperity and higher living standards.
Experts also revealed that the global economic growth is expected to fall to 2.8 percent in 2025 and 3.0 percent in 2026, down from previous projections of 3.3 percent. This downgrade is chiefly because of increasing tensions between China and USA on trade tariffs and policy unrest. The projected growth is significantly below the historical average of 3.7 percent. The global economic outlook faces significant downside risks. Escalating trade wars and policy uncertainty could further hinder growth.
Despite the economic and financial instability, demographic changes, high debt levels, and limited development assistance pose additional issues to growth and fiscal sustainability, mainly for emerging markets and low-income countries. The lingering effects of the cost-of-living crisis could also reignite social unrest. Experts recorded that the central banks need to adjust their monetary policies to sustain price and financial stability, even with tough trade-offs.
Managing foreign exchange volatility might need specific actions, as suggested through IMF. Tools to manage financial risks should be used when necessary to prevent vulnerabilities and support during crises.
In the developing country Pakistan, as per the State Bank of Pakistan (SBP) revealed in its mid-year performance review of the banking sector January–June 2025, the country’s banking sector remained resilient and well-capitalised in the first half (January-June) of the year 2025 in progress – gaining strength from growing deposits, contained credit risk, and robust capital buffers. Encouragingly, under dissimilar cases of stress testing exercise, the banking sector explains enough resilience to withstand severe shocks to main risk factors and hypothetical adverse economic situations.
Statistics showed that the asset base of the banking sector enlarged by 11 percent during Jan-Jun 2025; basically supported by a rise in commercial banks’ investments in government debt securities while advances to the private sector contracted. Nonetheless, fixed investment advances to SMEs continued to grow.
The review report further mentioned that the contraction in advances was witnessed in both public and private segments, reflecting seasonal factors also reversal of a substantial increase in lending towards the end of 2024 — largely attributable to ADR linked tax policy and improvements in macro-financial situations.
On funding side, after witnessing a contraction in second half (July-December) of 2024, deposits grew at an impressive pace of 17.7 percent, thus lowering banks’ reliance on borrowings, which remained almost stable over the period under review. It is also analyzed that asset quality indicators presented a mixed picture. While the stock of NPLs fell during the period under review, gross NPL ratio marginally deteriorated to 7.4 percent in June 2025 because of contraction in loan portfolio. However, total loan-loss provisions held, enhanced to 106.2 percent of NPLs, with net NPLs to net loans ratio clocking at negative 0.5 percent showing muted risk to solvency from NPLs.
On profitability front, the strong rise in earnings was mainly backed by higher net interest income also contained non-interest expenses. The solvency position of the banking sector remained steady as CAR reached at 21.4 percent at end June-2025 – well above the regulatory benchmark of 11.5 percent. On the other hand, the average volatility in local financial market, however, stayed relatively higher during the half year under review – driven mainly by equity market in the wake of US tariff tension and geo political tensions. The equity market continued its upbeat momentum amid enhancing domestic macroeconomic situations, punctuated by a few bouts of heightened volatility during second quarter (April-June) of 2025 in the wake of external factors like the US trade tariff policy and regional and geopolitical tensions, which materially impacted the market sentiments. It is important to note that SBP policy rate, after being slashed by 1,000bps from 22 percent since June 2024 in seven intervals, was cut to 11 percent in May.
The bank had kept the rate unchanged on June 16 as well. Monetary Policy Committee noted that inflation in June had decelerated to 3.2 percent year on year, led mainly by lower food prices, whereas core inflation also declined slightly. Pakistan’s banking sector has demonstrated remarkable resilience in the face of fluctuating macroeconomic situations.
Last year, the sector navigated through double-digit inflation and soaring policy rates. This year, particularly in the second half, the scenario reversed with inflation reaching a decade low and policy rates being reduced by 1000 basis points. Despite these shifts, the banking sector achieved a 8.2 percent growth in net profit.