State Bank of Pakistan mid-year review reports steady banking sector with capital adequacy ratio rising to 21.4 percent in H1 2025

The State Bank of Pakistan published its 2025 Mid-Year Performance Review of the Banking Sector, covering January to June 2025, concluding that the sector performed steadily and maintained adequate buffers. Banks expanded their asset base by 11.0 percent, driven mainly by increased investments in government securities, while advances contracted across both public and private sectors, with fixed investment advances to SMEs continuing to grow. On the liability side, deposits rose by 17.7 percent, reducing reliance on borrowings. Credit risk remained contained, with non-performing loans declining, although the gross NPLs-to-loans ratio edged up to 7.4 percent in June 2025 due to the contraction in advances; higher provisioning pushed the net NPLs-to-net loans ratio to negative 0.5 percent. Profitability stayed broadly unchanged, with return on assets at 1.3 percent and return on equity at 21.3 percent, while solvency strengthened as the capital adequacy ratio improved to 21.4 percent and remained well above the 11.5 percent regulatory minimum; stress tests indicated the ratio would stay comfortably above the minimum under baseline and hypothetically severe scenarios over a two-year horizon. Financial markets were more volatile than in H2 2024, mainly due to equity-market swings linked to trade tariff uncertainty and geopolitical tensions, and the Systemic Risk Survey placed geopolitical risk as the top concern while noting respondents’ confidence in overall financial system stability.