KARACHI: Pakistan’s banking sector remained resilient and well-capitalised in the first half (Jan-Jun) of the year 2025 in progress – gaining strength from growing deposits, contained credit risk, and robust capital buffers, the State Bank of Pakistan (SBP) said in its Mid-Year Performance Review of the Banking Sector January–June 2025.
“Encouragingly, under different scenarios of stress testing exercise, the banking sector shows sufficient resilience to withstand severe shocks to key risk factors and hypothetical adverse economic conditions,” the central bank said.
The asset base of the banking sector expanded by 11% during Jan-Jun 2025 (H1CY25); primarily supported by an increase in commercial banks’ investments in government debt securities while advances (loans) to the private sector contracted.
“Nonetheless, fixed investment advances to SMEs (small and medium-sized enterprises) continued to grow,” the central bank said in a press statement on the review.
Top 10 commercial banks at Pakistan Stock Exchange as of September 2025
The review report further said the contraction in advances was witnessed in both public and private segments, reflecting seasonal factors as well as reversal of a substantial increase in lending towards the end of 2024 —largely attributable to ADR (advance to deposit ratio) linked tax policy and improvements in macro-financial conditions.
On funding side, after witnessing a contraction in second half (Jul-Dec) of 2024, deposits grew at an impressive pace of 17.7%, “thus lowering banks’ reliance on borrowings, which remained almost stable over the period under review”.
Asset quality indicators presented a mixed picture. While the stock of nonperforming loans (NPLs) declined during the period under review, gross NPL ratio marginally deteriorated to 7.4% in June 2025 (6.3% in December 2024), due to contraction in loan portfolio.
Total loan-loss provisions held, however, improved to 106.2% of NPLs, with net NPLs to net loans ratio clocking at negative 0.5% – “representing muted risk to solvency from NPLs.”
On profitability front, the strong increase in earnings was primarily backed by higher net interest income as well as contained non-interest expenses.
The solvency position of the banking sector remained steady as Capital Adequacy Ratio (CAR) stood at 21.4% at end June-2025 – well above the regulatory benchmark of 11.5%.
Financial markets face higher volatility:
The average volatility in domestic financial market, however, remained 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 improving domestic macroeconomic conditions, punctuated by a few bouts of heightened volatility during second quarter (Apr-June) of 2025 in the wake of external factors such as the US trade tariff policy and regional and geopolitical tensions, which materially impacted the market sentiments, according to the review report.
Improved foreign exchange (FX) reserves due to the current account surplus and financial inflows kept FX market volatility under check while money market continued to operate smoothly.
According to the latest wave of Systemic Risk Survey, geopolitical risk was considered the top most risk by the independent respondents. Moreover, confidence was expressed in the stability of the financial system and the ability of the regulator to manage any unforeseen shocks.
American Dollar Exchange Rate