The State Bank of Pakistan (SBP) has reported that the performance and resilience of Pakistan’s banking sector remained intact during the first half of calendar year 2026, with improvements recorded across key indicators of asset quality, funding, financing and solvency. The central bank issued its Mid-Year Performance Review of the Banking Sector for H1CY26, covering the period from January to June 2026. The review also examines developments in financial markets and presents findings from the Systemic Risk Survey, which captures the views of independent experts on current and potential risks to financial stability.
According to the review, the overall balance sheet of the banking sector expanded by 9.1 percent during H1CY26, with the increase driven primarily by higher investments in government securities. Advances also recorded growth across both public and private sector segments, indicating continued expansion in bank financing. The SBP noted that long-term financing for small and medium-sized enterprises continued its upward trend during the period, while mortgage lending gained further traction, largely supported by the government’s subsidized housing finance scheme.
On the funding side, banks mobilized additional deposits amounting to Rs3,673 billion during the six-month period. The growth in deposits provided further support to the sector’s funding base as banks continued to expand their balance sheets and financing activities. The review also found that credit risk did not pose any serious concerns to financial stability during H1CY26, supported by improvements in asset quality and advances.
One of the key developments highlighted by the SBP was the improvement in the banking sector’s non-performing loan position. The ratio of non-performing loans to total loans declined to 5.5 percent in June 2026 from 6.1 percent in December 2025. The decline was attributed to a significant reduction in non-performing loans alongside an increase in advances. At the same time, the provisioning coverage ratio improved to 110.2 percent in June 2026 from 107.7 percent at the end of December 2025, strengthening the sector’s capacity to absorb potential credit losses.
The review noted that earnings growth across the banking sector was moderate during H1CY26. As a result, profitability indicators softened compared with the corresponding period of the previous year. Return on Assets declined to 1.1 percent in June 2026 from 1.3 percent in June 2025, while Return on Equity fell to 19.0 percent from 21.3 percent over the same period. Despite the moderation in earnings, the overall solvency position of the banking sector remained strong, with the Capital Adequacy Ratio standing at 19.6 percent during H1CY26.
The SBP’s latest macro stress tests also pointed to continued resilience within the banking sector. The results indicate that the banking sector overall, including large systemically important banks, is expected to remain solvent and capable of withstanding severe shocks over the projected two-year horizon. The findings suggest that the sector maintains sufficient capital strength to absorb significant stress under adverse scenarios.
The review also examined conditions across Pakistan’s financial markets during the first half of 2026. While stress in the equity market increased, foreign exchange and money markets experienced comparatively calmer conditions. The SBP attributed the higher volatility in the equity market mainly to adverse geopolitical developments in the Middle East. These developments contributed to uncertainty in financial markets and influenced broader risk perceptions during the period.
The latest Systemic Risk Survey further identified volatility in commodity prices, including oil, as the top-tier risk to financial stability, followed by global geopolitical risks. Despite these concerns, respondents surveyed by the SBP expressed confidence in the stability of Pakistan’s financial system and the ability of regulators to manage emerging risks.
Overall, the Mid-Year Performance Review presents a banking sector that entered the second half of 2026 with stronger asset quality, a solid capital position and continued growth in deposits and financing. While moderate earnings growth and increased equity-market stress remain areas to monitor, the SBP’s assessment indicates that banks, particularly systemically important institutions, retain the resilience needed to withstand significant economic and financial shocks.
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