Banking sector expands 15.8% in 2024
The State Bank of Pakistan's 2024 Financial Stability Review signals improving macroeconomic conditions, with easing inflation, stable exchange rates, and a rebound in private sector credit.
The banking sector showed strong performance, though concerns remain over rising borrowings, stressed microfinance banks, and global protectionist risks.
The review highlights that macroeconomic conditions improved considerably during CY24, as reflected by receding inflationary pressures and consequent significant monetary easing, fiscal consolidation, stable rupee-dollar parity, pick-up in economic activity, and improved external account balance. In this backdrop, financial sector — growing by a decent pace of 17.8% — maintained its operational and financial resilience during CY24.
Amid turnaround in macroeconomic environment, volatility in financial markets subsided. The banking sector exhibited steady performance and maintained its financial soundness. The balance sheet of banks expanded 15.8% in CY24. The expansion in assets was driven by both investment as well as advances.
Private sector advances witnessed a strong rebound, due to a revival in economic activity, easing of monetary policy, and advances-to-deposit ratio (ADR) linked tax policy for income from government securities. This tax policy also dampened deposit mobilisation, which further increased the banks' reliance on borrowings.
While revival of economic activity is expected to improve the repayment capacity of borrowers, the current level of credit risk of the banking sector also remained within a comfortable range as non-performing loans (NPLs) to gross loans ratio fell to 6.3% in December 2024 from 7.6% in December 2023.
The provisioning coverage further improved amid implementation of IFRS-9, with allowances and provisions held for loan losses exceeding the stock of outstanding NPLs, indicating a minimal net credit risk to solvency. The earning volume remained steady, while key profitability indicators witnessed moderation over the year.
The capital adequacy ratio, however, improved to 20.6% by the end of December 2024 and remained well above the minimum regulatory requirements. Within the banking sector, Islamic banking institutions witnessed a strong increase in asset base and a marked expansion in branch network, which also reflects SBP's focus on promoting Shariah-compliant financial services. Along with contained credit risk, resilience of the Islamic banks remained steady in CY24. Nonetheless, microfinance banks (MFBs) continued to remain under stress.
The review further highlighted that the non-bank financial sector presented a mixed performance. The balance sheet of DFIs contracted while that of NBFIs manifested a remarkable expansion. Moreover, the insurance sector continued to perform steadily.
Whereas the supply side of the financial sector presented a comfortable position, the demand side was affected by the erstwhile tighter financial conditions and subdued economic activity. In particular, the sales of non-financial large corporate sector witnessed pressure and moderation in earnings. However, liquidity profile and repayment capacity of the sector remained comfortable. Encouragingly though, the creditworthiness and repayment capacity of the large borrowers of the banking sector remained steady during CY24.
The review highlights that the FMIs continued to support financial system stability through operational resilience. The digital transactions continued to drive the momentum of retail transactions. With a view to facilitating and supporting remittances from the Gulf region, the SBP signed a memorandum of understanding (MoU) with the Arab Monetary Fund (AMF) to enable the integration of Raast with Buna – a cross-border payment system.
Moreover, Raast maintained the momentum of strong growth, which particularly got traction after the introduction of person-to-merchant module in late 2023.
Going forward, a continued perceptible progress on structural reforms is crucial for sustained economic growth, building of external buffers and reducing external financing risks. The heightened uncertainty amid the recent wave of protectionist measures and its associated implications on global economic growth and financial conditions may also pose challenges for domestic economy.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
9 hours ago
- Express Tribune
SBP upgrades PRISM system
Ahmad described PRISM+ as a 'strategic asset' that will enable the country's payment systems to meet future demands, support innovation, and enhance financial stability. Photo: File The State Bank of Pakistan (SBP) has formally launched its upgraded Pakistan Real-Time Interbank Settlement Mechanism Plus (PRISM+) after the original system processed transactions worth over Rs1,043 trillion in FY24, equal to ten times the size of Pakistan's GDP. SBP Governor Jameel Ahmad said the massive transaction volumes highlighted the strategic importance of large-value payment systems in financial markets. PRISM+, he added, would expand the system's capacity and efficiency to meet growing needs. He was addressing stakeholders at the launch ceremony held at the National Institute of Banking and Finance (NIBAF) in Karachi. The event was attended by CEOs of banks, microfinance institutions, payment system operators (PSOs), payment service providers (PSPs), senior SBP officials and stakeholders. Built on the ISO 20022 global messaging standard, PRISM+ places Pakistan among a small group of countries adopting the state-of-the-art framework for both retail and wholesale payments. The new system enables structured financial messaging, improved interoperability, and greater transparency. PRISM+ also introduces advanced features such as real-time liquidity management tools, transaction queuing and prioritisation, future-dated payments, and seamless integration with the Central Securities Depository (CSD) for auctions, repos, and monetary operations. Ahmad said the initiative reflects SBP's Vision 2028 to modernise digital financial infrastructure. He pointed to Pakistan's rapid shift toward digital finance, noting that the country now has over 225 million bank and digital wallet accounts, including 96 million unique users. Around 28 million people use banking apps, 71 million rely on branchless banking, while 17 million access internet banking. The governor reaffirmed SBP's strong focus on the security and resilience of payment systems. "As we expand Pakistan's digital infrastructure, SBP has mandated strict cybersecurity, anti-money laundering and fraud control frameworks to ensure trust and transparency," he said. He acknowledged the World Bank Group's support under the Financial Inclusion and Infrastructure Project and praised the efforts of SBP teams, consultants, and partner banks in executing the upgrade. In his concluding remarks, Ahmad described PRISM+ as a "strategic asset" that will enable the country's payment systems to meet future demands, support innovation, and enhance financial stability.
Express Tribune
10 hours ago
- Express Tribune
Current account posts $254 million deficit in July
The current account deficit peaked at $17.4 billion during the just ended fiscal year as against deficit of $2.8 billion in the preceding year. Photo: file Pakistan's current account (CA) posted a deficit of $254 million in July 2025, according to the latest figures released by the State Bank of Pakistan (SBP) on Tuesday. Last month, the country recorded a CA surplus of $335 million, while in July 2024, the deficit had stood at $348 million. The SBP data shows a CA deficit of $254 million in July 2025, reflecting a notable improvement compared to the $348 million deficit recorded in July 2024. This marks a year-on-year reduction of $94 million, indicating a positive shift in the country's external sector dynamics as the new fiscal year begins. However, the monthly CA data from July 2024 to July 2025 highlights a period of mixed performance, with several months showing strong surpluses that helped offset periods of modest deficits. The fiscal year began with three consecutive months of deficits; July ($0.35 billion), August ($0.08 billion), and September 2024 ($0.04 billion). However, this was followed by a shift in October 2024, which recorded a surplus of $310 million. The external position continued to improve in November and December 2024, with surpluses of $720 million and $470 million, respectively. In early 2025, the trend briefly reversed. January 2025 posted the highest monthly deficit of the year at $380 million, followed by a smaller deficit of $80 million in February. March 2025 marked a strong recovery, as Pakistan recorded its highest monthly surplus during the period at $1.28 billion, reflecting either a surge in exports, remittances, or possibly one-off inflows. The CA remained relatively stable in the closing months of the fiscal year, with April 2025 posting a marginal surplus of $20 million, May returning to a small deficit of $80 million, and June rebounding with a surplus of $340 million. Speaking to The Express Tribune, JS Global Head of Research Waqas Ghani said, "The shortfall of $254 million in July 2025 as opposed to a surplus of $335 million last month was driven primarily by a widening trade deficit, as a strengthening domestic economy spurred a rebound in imports." He expected the CA to end the fiscal year in deficit, driven by the pickup in imports. Even so, stable global commodity prices should help limit import pressures, while resilient workers' remittances are likely to anchor external stability. He anticipated a further buildup in foreign exchange reserves going forward, with workers' remittances expected to exceed $40 billion in FY26. Ghani believed that the sustained inflow of remittances are driven by a shift towards official channels which are a key support to the CA. He projected the external financing requirements for FY26 to remain broadly in line with last year's levels. REER The Real Effective Exchange Rate (REER) index appreciated to 98.6 in July 2025, up from 96.6 in June 2025, according to data released by the SBP. This two-point increase reflects a slight strengthening of the rupee in real terms against a basket of trading partner currencies. While the REER remains below the benchmark level of 100, the recent appreciation suggests a marginal rise in the relative value of the Pakistani rupee, which could impact export competitiveness if the trend continues. Nonetheless, the REER is still broadly aligned with historical averages, indicating relative external stability. Meanwhile, the local currency extended its winning streak on Tuesday, August 19, 2025, appreciating 0.02% against the US dollar in the interbank market. The local currency closed at 281.96, strengthening slightly from the previous day's rate of 282.02. This marks the eighth consecutive session of gains for the rupee, reflecting continued stability in the foreign exchange market and improved sentiment around the economy.
Business Recorder
12 hours ago
- Business Recorder
Payment infrastructure boost: SBP launches new PRISM+ system
KARACHI: The State Bank of Pakistan (SBP) Tuesday launched Pakistan's new Real-Time Interbank Settlement Mechanism Plus (PRISM+) system to modernize & strengthen payment infrastructure for a digitally empowered and inclusive economy. State Bank of Pakistan (SBP) Governor Jameel Ahmad formally launched PRISM+ system, marking a significant milestone in the modernization of country's financial market infrastructure. The launch ceremony, held at the National Institute of Banking and Finance (NIBAF Pakistan), here and was attended by CEOs of banks, Microfinance Institutions, Payment System Operators (PSOs), Payment Service Providers (PSPs), senior SBP officials and other stakeholders. In his keynote address, SBP Governor Jameel Ahmad said the PRISM+ reflects the SBP's commitment to strengthening digital financial infrastructure in line with its Vision 2028. With PRISM+, Pakistan has become one of the few countries to adopt the ISO 20022 global messaging standard for both retail and large-value payment systems. Pakistan launches PRISM+ to upgrade payment and settlement system Built on the state-of-the-art standard, PRISM+ offers enhanced functionality, including structured financial messaging, improved interoperability, and greater transparency. It also introduces advanced features such as real-time liquidity management tools, transaction queuing and prioritization, future-dated payments, and seamless integration with the Central Securities Depository (CSD) for auctions, repos, and monetary operations. The Governor emphasized the strategic importance of large-value payment systems in financial markets. He added that PRISM processed transactions worth over PKR 1,043 trillion in FY24 — equivalent to ten times Pakistan's GDP. With PRISM+, we are enhancing the system's capacity and efficiency to support growing financial market needs, he noted. Governor SBP highlighted Pakistan's broader digital transformation, pointing to the rising use of digital channels. He shared that Pakistan now has over 225 million bank and digital wallet accounts, with 96 million unique users. There are 28 million registered users of banking apps, 71 million branchless banking users, and 17 million internet banking users, reflecting a strong shift in consumer preferences toward digital financial services, he added. The Governor reaffirmed SBP's strong focus on the security and resilience of payment systems. As we expand Pakistan's digital infrastructure, SBP has mandated strict cybersecurity, anti-money laundering (AML) and fraud management & controls frameworks to ensure trust and transparency in the financial system, he emphasized. Governor Ahmad acknowledged the World Bank Group's technical and financial support under the Financial Inclusion and Infrastructure Project and appreciated the efforts of key experts and SBP teams who led the project to completion. Copyright Business Recorder, 2025
