The State Bank of Pakistan (SBP) has released its flagship annual publication, the Financial Stability Review (FSR) for the year 2024. Issued under Section 39(3) of the State Bank of Pakistan Act, 1956, the report provides a comprehensive assessment of the performance, risks, and resilience across multiple segments of the financial system. These include commercial banks, microfinance banks (MFBs), development finance institutions (DFIs), non-bank financial institutions (NBFIs), insurance, financial markets, and financial market infrastructures (FMIs), as well as the non-financial corporate sector, which remains a key borrower segment.
According to the FSR 2024, the financial system maintained its resilience throughout the year despite global and domestic economic uncertainties. The review notes a notable improvement in macroeconomic conditions during calendar year 2024, highlighted by a reduction in inflationary pressures, easing monetary policy, fiscal consolidation, stabilization of the rupee against the dollar, and a more balanced external account. Against this backdrop, the financial sector expanded by 17.8 percent and continued to demonstrate operational and financial stability.
The banking sector, which forms the backbone of Pakistan’s financial system, posted a 15.8 percent increase in its balance sheet. This growth was driven by both investment and advances, particularly to the private sector. Factors such as renewed economic activity, lower interest rates, and tax policies linked to the advances-to-deposit ratio (ADR) contributed to this uptick. However, the same tax policy also discouraged deposit mobilization, prompting banks to rely more heavily on borrowings.
Credit risk within the banking sector remained contained. The ratio of non-performing loans (NPLs) to gross loans declined to 6.3 percent by the end of December 2024, from 7.6 percent a year earlier. Provisioning coverage further improved under IFRS-9, with loan loss allowances exceeding outstanding NPLs. Profitability remained stable, though key indicators moderated slightly. Encouragingly, the capital adequacy ratio improved to 20.6 percent, well above the regulatory minimum.
Islamic banking institutions continued to grow in both asset base and outreach, reflecting the SBP’s emphasis on promoting Shariah-compliant financial services. These institutions maintained steady resilience alongside manageable credit risk levels.
However, the performance of microfinance banks remained under pressure, revealing ongoing challenges in the segment. The non-bank financial sector saw mixed results—while DFIs experienced a contraction, NBFIs posted impressive growth. The insurance sector sustained its steady performance despite earlier tight financial conditions and subdued economic activity that impacted demand.
On the digital finance front, financial market infrastructures (FMIs) showed strong operational resilience. Retail digital transactions continued to gain momentum, particularly through SBP’s Raast platform. Raast’s Person-to-Merchant (P2M) module, introduced in late 2023, contributed significantly to this surge. Further strengthening cross-border payment capabilities, SBP signed a Memorandum of Understanding (MoU) with the Arab Monetary Fund (AMF) to integrate Raast with the Buna platform—an initiative aimed at boosting remittance flows from the Gulf region.
The FSR concludes by emphasizing the importance of continued structural reforms for sustainable economic growth, stronger external buffers, and lower external financing risks. It also acknowledges external challenges such as global protectionist trends and financial volatility. Nonetheless, stress testing results indicate that Pakistan’s banking sector is expected to remain resilient under severe but plausible hypothetical shocks over a three-year projection period. The SBP reaffirmed its commitment to ensuring financial system stability through vigilant risk monitoring and robust regulatory oversight.