The State Bank of Pakistan (SBP) has released its Mid-Year Performance Review of the Banking Sector for 2025, offering a detailed assessment of the industry’s performance during the first six months of the year. The report highlights that banks expanded their asset base by 11.0 percent in the first half of 2025, reflecting steady growth despite challenges in lending activities.
Asset growth was largely driven by investments in government securities as the state continued to rely on banks for financing needs. However, the sector faced contraction in advances across both public and private sectors, signaling a cautious lending environment. One encouraging trend came from fixed investment advances to small and medium enterprises (SMEs), which recorded growth and highlighted ongoing institutional support for this vital segment of the economy.
On the funding side, deposit growth was particularly impressive, rising 17.7 percent in H1CY25. This surge significantly reduced the sector’s dependence on borrowings and strengthened liquidity buffers, giving banks a stable base of funding in a period marked by volatility in financial markets.
The review also underscored that credit risk remained contained. While non-performing loans (NPLs) declined in absolute terms, the contraction in lending caused the gross NPL-to-loans ratio to inch upward, reaching 7.4 percent by June 2025. Importantly, banks carried higher provisions against potential loan losses, which kept the net NPL-to-net loans ratio at negative 0.5 percent, signaling muted risks when provisioning is taken into account.
Earnings performance held steady, supported by the increasing volumes of income-generating assets. Return on Assets (ROA) was maintained at 1.3 percent, unchanged from December 2024, while Return on Equity (ROE) came in at 21.3 percent, only marginally lower than the 21.5 percent reported at the end of last year.
The solvency profile of the sector improved further, with the Capital Adequacy Ratio (CAR) climbing to 21.4 percent in June 2025 compared to 20.6 percent in December 2024. This level stands significantly above the minimum regulatory requirement, ensuring strong buffers against potential future shocks. Stress testing conducted by the SBP confirmed that CAR is expected to remain well above the required 11.5 percent threshold under both baseline and stressed macro-financial scenarios over a two-year outlook, underscoring resilience to shocks in credit and market risk.
Financial markets, meanwhile, exhibited greater volatility compared with the second half of 2024. Equity market swings were attributed to short-term impacts of trade tariff uncertainties and geopolitical tensions. Despite these pressures, the Systemic Risk Survey conducted by SBP revealed that while geopolitical risk remains the most significant concern, independent experts expressed confidence in the overall stability of the financial system and the regulator’s ability to manage emerging challenges.
The review concludes that Pakistan’s banking sector has maintained its resilience and adequate buffers despite macroeconomic pressures and lending slowdowns. Strong capital adequacy, robust deposit growth, and contained credit risk provide a solid foundation for the sector to support economic recovery and growth in the months ahead.
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