The State Bank of Pakistan (SBP) has released its annual Financial Stability Review (FSR) for 2024, offering an in-depth assessment of the country’s financial system performance, associated risks, and institutional resilience amid gradually improving macroeconomic conditions. As mandated by Section 39(3) of the SBP Act, 1956, the FSR covers all major segments of the financial system including banks, microfinance banks (MFBs), development finance institutions (DFIs), non-bank financial institutions (NBFIs), insurance, financial markets, and financial market infrastructures (FMIs).
According to the report, the financial sector remained operationally and financially resilient throughout calendar year 2024, supported by a macroeconomic turnaround marked by falling inflation, a stable currency, a pickup in economic activity, and improved external account indicators. The sector grew at a healthy pace of 17.8%, demonstrating solid fundamentals in a recovering economic environment.
The banking sector, which remains the backbone of Pakistan’s financial system, posted 15.8% growth in its balance sheet during 2024, led by both investments and a strong rebound in private sector lending. The revival in credit demand was largely driven by monetary policy easing, improving economic conditions, and tax incentives linked to the advances-to-deposit ratio (ADR). However, this policy also slowed deposit mobilization, increasing banks’ reliance on borrowings.
Notably, credit risk indicators improved, with the non-performing loans (NPLs) to gross loans ratio dropping to 6.3% in December 2024 from 7.6% a year earlier. Provisioning coverage strengthened under IFRS-9 implementation, and allowances for loan losses exceeded outstanding NPLs, indicating minimal net credit risk to solvency. While overall earnings remained stable, profitability indicators showed some moderation. Despite this, the capital adequacy ratio (CAR) improved to 20.6%, well above regulatory requirements.
Islamic banking showed significant momentum, with marked growth in asset base and an expanded branch network, in line with SBP’s push to enhance access to Shariah-compliant financial services. Credit risk for Islamic banks remained well-contained, reinforcing the sector’s stability.
On the other hand, microfinance banks (MFBs) continued to face stress, reflecting persistent challenges in this segment. The performance of non-bank financial institutions (NBFIs) was mixed: DFIs saw balance sheet contraction, while NBFIs posted strong growth. The insurance sector maintained a stable performance trajectory.
On the non-financial corporate side, large businesses faced pressure on sales and earnings amid still-tight financial conditions early in the year. However, the liquidity and repayment capacity of these firms remained satisfactory, and the creditworthiness of large banking sector borrowers stayed stable.
The FSR also highlighted the growing importance of digital finance, especially the role of Raast, Pakistan’s instant payment system. Digital retail transactions continued to rise, further fueled by the Person-to-Merchant (P2M) module introduced in late 2023. A key milestone in 2024 was the MoU between SBP and the Arab Monetary Fund (AMF) to integrate Raast with Buna, a cross-border payment platform, particularly aimed at easing remittance flows from the Gulf region.
In terms of systemic resilience, the SBP reported that results from its latest stress tests affirm the banking sector’s ability to withstand severe but plausible shocks over the next three years, with projected compliance on capital adequacy fronts.
Looking ahead, the SBP emphasized the importance of sustained structural reforms to reinforce economic recovery, build external buffers, and manage external financing risks. However, it warned that global headwinds, including a new wave of protectionism and volatile financial conditions, could present risks to Pakistan’s economy.
The SBP reiterated its commitment to maintaining financial system stability by closely monitoring emerging threats and strengthening its regulatory and supervisory frameworks. The full Financial Stability Review 2024 is accessible via the SBP website at: https://www.sbp.org.pk/FSR/2024/index.htm.