Pakistan banking sector remains resilient in H1CY26: SBP

Pakistan's banking sector maintained its strength and stability during the first half of 2026, according to the State Bank of Pakistan (SBP). The sector's balance sheet grew by 9.1% year to date, primarily fueled by increased investments in government securities. Loans to small and medium enterprises (SMEs) continued to rise, while mortgage lending expanded due to a subsidized government scheme. Banks also attracted additional deposits worth Rs3.673 trillion during the period.

Credit risk was deemed insignificant for financial stability, with the ratio of non-performing loans (NPLs) to total loans decreasing to 5.5% in June 2026 from 6.1% in December 2025. This improvement was driven by a substantial reduction in NPLs and a surge in advances. The provisioning coverage ratio also saw a boost to 110.2% in June 2026 from 107.7% in December 2025.

However, the growth in sector earnings remained modest, with return on assets (ROA) dipping to 1.1% in June 2026 from 1.3% a year earlier, and return on equity (ROE) falling to 19% from 21.3%. The banking sector's solvency remained robust, with a capital adequacy ratio (CAR) of 19.6% during H1CY26. The SBP's macro stress tests indicated that the sector, especially large systemically important banks, would remain solvent and resilient even in the face of severe shocks over a two-year period.

The latest Systemic Risk Survey identified commodity price volatility, particularly oil, and global geopolitical risks as the top-tier risks, despite these concerns, industry respondents expressed confidence in the financial system's stability and regulators' capacity to ensure stability.