KARACHI: Pakistan’s financial system demonstrated continued resilience in the calendar year 2024 (CY24), with the sector registering a healthy growth rate of 17.8 percent. The period also saw notable improvements in macroeconomic indicators, including declining inflation, relaxed monetary stance, fiscal discipline, a steady exchange rate, and a fortified external sector.
The State Bank of Pakistan (SBP) released its annual Financial Stability Review (FSR) for CY24 on Thursday. This flagship report is published under the mandate of Section 39(3) of the SBP Act, 1956, and provides an overview of the financial sector’s performance and associated risks.
The FSR evaluates the health and risks of multiple segments within the financial ecosystem — such as commercial banks, microfinance institutions (MFBs), development finance institutions (DFIs), non-bank financial institutions (NBFIs), insurance companies, financial markets, and financial market infrastructure (FMIs). It also reviews the stability of the non-financial corporate sector, a key recipient of banking credit.
The report underscores that CY24 witnessed substantial economic recovery, as seen in eased inflation, robust economic activity, stronger fiscal and external positions, and a stable rupee. These conditions created a conducive environment for financial sector growth, which remained solid at 17.8 percent while sustaining operational and financial resilience.
As macroeconomic stability returned, volatility in financial markets eased. The banking sector sustained its health, with assets increasing by 15.8 percent during the year. This growth was fueled by both investments and credit advances.
Lending to the private sector saw a significant recovery, propelled by economic resurgence, monetary easing, and the advances-to-deposit ratio (ADR)-based taxation on income from government securities. However, this policy also impacted deposit mobilization, prompting banks to depend more on borrowing.
With improved economic conditions, borrowers’ repayment capacities are expected to strengthen. Credit risk in the banking sector remained under control, with the ratio of non-performing loans (NPLs) to gross loans dropping to 6.3 percent in December 2024 from 7.6 percent a year earlier.
The sector’s provisioning levels were further enhanced under the implementation of IFRS-9 standards, with loan loss provisions exceeding the outstanding NPLs, indicating negligible net credit risk to solvency. While overall earnings remained steady, some moderation was observed in profitability metrics. Importantly, the capital adequacy ratio rose to 20.6 percent by the end of December 2024, staying well above the required regulatory threshold.
