Pakistan’s banking sector remained resilient and financially sound during the first half of calendar year 2026 (H1CY26), despite increased volatility in equity markets.
According to the SBP’s Mid-Year Performance Review of the Banking Sector, released on Monday, the sector’s balance sheet grew by 9.1% between January and June, mainly due to increased investment in government securities.
Bank lending also expanded across both public and private sectors, while long-term financing for small and medium-sized enterprises (SMEs) continued to rise. Mortgage financing gained further momentum, largely supported by the government’s subsidised housing scheme.
On the funding side, banks mobilised an additional Rs3,673 billion in deposits during the six-month period.
The SBP said credit risk did not pose a significant threat to financial stability during H1CY26. The ratio of non-performing loans (NPLs) to total loans declined to 5.5% in June from 6.1% at the end of December 2025, supported by a reduction in NPLs and growth in advances.
The banking sector’s provisioning coverage ratio also improved to 110.2% in June from 107.7% in December 2025.
However, profitability indicators weakened moderately. Return on Assets (ROA) fell to 1.1% in June 2026 from 1.3% in June 2025, while Return on Equity (ROE) declined to 19% from 21.3% over the same period.
Despite the softer profitability, the sector maintained a strong solvency position, with its Capital Adequacy Ratio (CAR) standing at 19.6%.
The SBP said its latest macro stress tests showed that the banking sector, including systemically important banks, is expected to remain solvent and resilient over the next two years, even under severe economic shocks.
The review noted that conditions in the equity market became more volatile during H1CY26, mainly due to adverse geopolitical developments in the Middle East. In contrast, foreign exchange and money markets remained relatively stable.
The latest Systemic Risk Survey identified volatility in commodity prices, particularly oil, as the leading risk to financial stability, followed by global geopolitical risks.
Despite these concerns, survey respondents remained confident about the stability of Pakistan’s financial system and the regulators’ ability to safeguard financial stability.
