Pakistan banking sector remains resilient in H1CY26: SBP
- Review says long-term financing to small and medium enterprises (SMEs) continued to increase during the period
Pakistan's banking sector demonstrated resilience and growth in H1CY26, with balance sheet expansion, improved credit risk, and strong solvency, despite moderate earnings and external risks.
- Pakistan's banking sector balance sheet expansion.
- Improved credit risk and declining non-performing loans.
- Banking sector solvency and stress test resilience.
The performance and resilience of Pakistan’s banking sector remained intact during the first half of calendar year 2026 (H1CY26), with the sector’s balance sheet expanding by 9.1%, the State Bank of Pakistan (SBP) said on Monday.
According to the SBP’s Mid-Year Performance Review of the Banking Sector, the balance sheet expansion was primarily driven by increased investments in government securities, while advances also grew across both public and private segments.
Long-term financing to small and medium enterprises (SMEs) continued to increase during the period, while mortgage lending gained further traction, largely due to the government’s subsidised scheme.
On the funding side, banks mobilised additional deposits of Rs3.673 trillion during H1CY26.
The central bank said credit risk did not pose serious concerns to financial stability during the period. The ratio of non-performing loans (NPLs) to total loans declined to 5.5% in June 2026 from 6.1% in December 2025, supported by a significant reduction in NPLs and an increase in advances.
The provisioning coverage ratio also improved to 110.2% in June 2026 from 107.7% in December 2025.
However, the increase in banking sector earnings remained moderate, with return on assets (ROA) declining to 1.1% in June 2026 from 1.3% a year earlier, while return on equity (ROE) fell to 19% from 21.3%.
The sector’s solvency position remained strong, with the capital adequacy ratio (CAR) standing at 19.6% during H1CY26.
The SBP said its latest macro stress tests showed that the banking sector, particularly large systemically important banks, is expected to remain solvent and resilient and withstand even severe shocks over the projected two-year horizon.
The review noted that stress in the equity market increased during H1CY26, mainly due to adverse geopolitical developments in the Middle East, while foreign exchange and money markets witnessed calmer conditions.
The latest Systemic Risk Survey identified volatility in commodity prices, including oil, as the top-tier risk, followed by global geopolitical risks.
Despite these risks, respondents expressed confidence in the stability of the financial system and the ability of regulators to ensure financial stability.
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