The State Bank of Pakistan (SBP) has released the Mid-Year Performance Review of the Banking Sector for 2025, assessing the industry’s financial soundness and resilience during the first half of the calendar year. Covering the period from January to June 2025 (H1CY25), the review also discusses financial markets and presents results of the Systemic Risk Survey, which captures independent experts’ perspectives on current and potential risks to financial stability.
According to the report, the country’s banking sector showed resilience with an asset base growth of 11.0 percent during the first six months of the year. This expansion was largely driven by investments in government securities, reflecting the state’s financing needs. However, advances to both the public and private sectors witnessed contraction, signaling cautious lending conditions. Despite this slowdown, fixed investment advances to small and medium enterprises (SMEs) recorded growth, demonstrating continued support for this vital segment of the economy.
On the funding side, deposit mobilization remained strong, rising by 17.7 percent in H1CY25. This impressive growth in deposits reduced banks’ reliance on borrowing, strengthening their balance sheets and liquidity position.
The review also underscored that credit risk in the banking sector stayed contained. Non-performing loans (NPLs) declined in absolute terms during the review period, but due to the contraction in advances, the gross NPL-to-loan ratio marginally rose to 7.4 percent by June 2025. Nonetheless, with banks maintaining higher provisions against potential loan losses, the net NPL-to-net loans ratio stood at negative 0.5 percent, highlighting muted risks at the net level.
Earnings for the sector remained steady, supported by rising volumes of income-generating assets. The return on assets (ROA) stood firm at 1.3 percent, while the return on equity (ROE) was recorded at 21.3 percent. These figures are broadly consistent with December 2024 levels, reflecting sustained profitability despite broader lending challenges.
The solvency position of banks continued to strengthen, with the Capital Adequacy Ratio (CAR) improving to 21.4 percent compared to 20.6 percent in December 2024. This ratio remains significantly higher than the minimum regulatory requirement. Stress test results further confirmed the sector’s resilience, indicating that CAR is expected to remain comfortably above the 11.5 percent minimum threshold under both baseline and adverse macro-financial conditions over the two-year forecast horizon. These outcomes also highlighted that banks are well-positioned to absorb shocks related to credit and market risks.
In contrast, the financial markets displayed relatively higher volatility during H1CY25 compared with the previous half-year. The equity market, in particular, experienced fluctuations due to temporary concerns about trade tariffs and ongoing geopolitical tensions. Despite this volatility, the systemic risk survey respondents identified geopolitical risk as the primary challenge ahead. However, they also expressed confidence in the stability of the financial system and the regulator’s ability to handle potential shocks.
The Mid-Year Performance Review of 2025 demonstrates that Pakistan’s banking sector continues to operate from a position of strength, maintaining adequate buffers and steady earnings. While geopolitical challenges and market volatility remain areas of concern, the sector’s resilience and regulatory oversight provide assurance of stability moving forward.
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