By Staff Reporter
KARACHI: The banking sector expanded assets and bolstered solvency in the first half of 2025 despite a contraction in lending, the State Bank of Pakistan (SBP) said in its Mid-Year Performance Review released on Wednesday.
The report, spanning January to June, also noted heightened financial market volatility and flagged geopolitical risks as a top concern, though confidence in the sector’s stability remains firm.
Banks grew their asset base by 11.0% in the period, fueled largely by investments in government securities to meet public borrowing needs. Advances to both public and private sectors shrank, though fixed investment loans to small and medium-sized enterprises (SMEs) continued to rise, signaling targeted support for a vital economic segment.
Deposits jumped 17.7%, outstripping asset growth and reducing reliance on borrowings, providing banks with a stable funding base.
Credit risk stayed contained, with non-performing loans (NPLs) declining in absolute terms. However, a smaller loan book nudged the gross NPL-to-loans ratio to 7.4% in June 2025, up slightly from December 2024. High provisions for loan losses kept the net NPL-to-net-loans ratio at a negative 0.5%, reflecting minimal net risk.
Earnings remained steady, supported by growing earning assets. Return on Assets (ROA) held at 1.3%, unchanged from December 2024, while Return on Equity (ROE) slipped to 21.3% from 21.5%. Solvency strengthened, with the Capital Adequacy Ratio (CAR) rising to 21.4% from 20.6%, far exceeding the 11.5% regulatory minimum.
Stress tests confirmed the sector’s resilience, projecting CAR well above the minimum under baseline and severe macroeconomic scenarios over two years. Banks also showed strong capacity to absorb hypothetical credit and market risk shocks.
Financial markets saw increased volatility compared to the second half of 2024, driven by equity market swings tied to trade tariff uncertainties and geopolitical tensions. The SBP’s Systemic Risk Survey, reflecting independent expert views, ranked geopolitical risk as the top threat but expressed confidence in the financial system’s stability and the central bank’s ability to handle shocks.
The report comes as Pakistan navigates fiscal pressures and global uncertainties. Heavy reliance on government securities underscores banks’ role in public financing, but the lending pullback raises concerns about private-sector credit access, critical for growth.
With robust capital buffers and steady earnings, banks appear well-equipped for near-term challenges. Yet, the SBP’s focus on geopolitical risks highlights the need for caution in a volatile global environment. The sector’s ability to balance stability with economic support will be key as Pakistan charts its recovery.
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