Business Recorder
KARACHI: Financial system’s performance and resilience remained steady and grew by 15.1 percent during last calendar year (CY25), the State Bank of Pakistan reported on Tuesday. The SBP on Tuesday issued its annual flagship publication Financial Stability Review (FSR) for CY25. The FSR presents the performance and risk assessment of various segments of the financial sector. The review highlighted that the domestic macroeconomic conditions further improved during CY25 and encouragingly, the financial depth, as measured by assets-to-GDP ratio, increased to 67.1 percent while risks to financial stability subsided during the year under review. Amid well-calibrated policy measures, inflation eased and fell within SBP’s target range and economic activity continued to gain momentum. SBP’s FX reserves witnessed noticeable improvement mainly due to contained current account deficit and SBP’s strategic purchases in the interbank market. In this background, reviews under Extended Fund Facility (EFF) along with arrangements under Resilience and Sustainability Facility (RSF) were successfully completed. The financial market constituents, viz., the money, forex and equity segments functioned smoothly without any major disruption. The average volatility in domestic markets, nonetheless, witnessed an uptickmainly driven by the equity market which posted substantial gains despite trade-tariff uncertainties and a few events of geopolitical tensions. Particularly, forex market sentiments remained calm. The banking sector continued to exhibit steady performance and resilience during CY25 and banks’ balance sheet expanded by 17.8 percent, driven by investments in government securities. Advances showed a YoY decline as of December 2025, mainly reflecting higher base effect of last year’s ADR-linked tax policy; however, adjusting for this base effect, the advances registered a decent growth in line with the improvements in macro-financial conditions. With a healthy revival in deposits’ mobilization, banks’ reliance on borrowings subsided. Asset quality indicators improved, as non-performing loans (NPLs) to gross loans ratio declined to 6.1 percent in December 2025 from 6.3 percent last year. On a net basis, however, the credit risk remained low as the provisioning coverage of NPLs further improved to 107.7 percent and a large part of the credit portfolio comprised rated borrowers with steady credit profile and established background. On profitability front, the after-tax earnings posted growth; nonetheless, volume-driven earnings led to moderation in profitability indicators. The solvency position of the sector remained strong as capital adequacy ratio improved to 20.8 percent by end December 2025 and remained well above the minimum international and local regulatory benchmarks. Within the banking sector, Islamic banking institutions witnessed highest ever expansion in branch network and continued their growth momentum. Along with muted credit risk and steady earnings, capital buffers of the Islamic banks remained strong as well. Microfinance banks (MFBs) on aggregate basis, though remained under stress, however, the sector recorded significant reduction in losses during CY25 as the recapitalization and restructuring efforts started to mature. The Review notes that non-bank financial sector presented a mixed performance. The asset base of DFIs contracted while NBFIs grew at a decent pace. The insurance sector maintained a strong performance during the year. Copyright Business Recorder, 2026
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