Karachi, September 18, 2024 – The State Bank of Pakistan (SBP) reported on Wednesday that the country’s banking sector experienced a robust growth of 11.5% during the first half of the calendar year 2024 (H1CY24). In its mid-year performance review, covering the period from January to June 2024, the SBP attributed this growth primarily to an expansion in the banking sector’s asset base, driven by a surge in investments.
The report revealed that domestic advances, which represent loans extended by banks, saw a marginal increase of 0.6% during the review period. This growth was largely fueled by public sector advances, which rose by 3.9%, while private sector advances contracted slightly by 0.6%. The contraction in private sector lending was notably smaller compared to the significant 7.0% decline observed in the same period in 2023 (H1CY23), reflecting improved macroeconomic conditions.
On the funding side, deposits grew by 11.7% in H1CY24, demonstrating strong confidence in the banking sector. However, the SBP also noted that banks continued to rely significantly on borrowings to support their balance sheets during the period.
The asset quality of banks remained stable, as the uptick in gross non-performing loans (NPLs) was minimal. This stability was further enhanced by improved provisioning coverage, thanks to the introduction of the International Financial Reporting Standard (IFRS-9). This regulatory change led to the creation of allowances for potential future losses within regular portfolios, resulting in an improved total provisioning to NPL ratio of 105.3% by the end of June 2024, compared to 94.4% in June 2023. The specific provisioning to NPL ratio also saw a slight improvement, rising to 85.5% from 83.6% during the same period.
However, despite the sector’s overall growth, the SBP report noted a slowdown in earnings, driven by a deceleration in net interest income. Non-interest income, such as fees and commissions, helped mitigate this slowdown, supporting the sector’s profitability. The solvency of the banking sector remained strong, with the Capital Adequacy Ratio (CAR) improving to 20.0% at the end of June 2024, up from 17.8% in June 2023. This indicates that banks have maintained sufficient capital buffers to absorb potential losses.
In addition to the sector’s strong capital position, stress tests conducted by the SBP showed that the banking system remains resilient to various economic shocks. The stress tests demonstrated the sector’s capacity to withstand adverse scenarios and key risk factors, underscoring the sector’s stability.
Financial markets in Pakistan also experienced relatively lower stress during H1CY24 compared to the same period in 2023. The report highlighted improving macroeconomic conditions and a reduction in the country’s risk premium, which contributed to reduced volatility in financial markets. The foreign exchange market, which had witnessed significant fluctuations in the previous year, remained relatively stable during this period. While equity markets saw increased volatility, the money market continued to function in an orderly manner, with SBP’s monetary policy operations keeping interest rates within the targeted policy range.
The 14th wave of the SBP’s Systemic Risk Survey, conducted in July 2024, showed growing confidence among respondents regarding the stability of the financial system and the central bank’s ability to manage potential risks.
