The State Bank of Pakistan (SBP) on Thursday refuted reports suggesting that bank deposits above Rs500,000 in the banking system are unsafe.

In a statement, the central bank said that “certain sections of the media, on the basis of a statement given by Deputy Governor of SBP, Dr Inayat Hussain during the meeting of Senate Standing Committee on Finance and Revenue, are implying as if bank deposits above Rs500,000 in the banking system in Pakistan are unsafe”.

“It is categorically stated that the deposits are safe owing to a sound banking system in Pakistan under a robust regulatory and supervisory framework of SBP.”

The rebuttal come after Dr Inayat Hussain said only deposits up to Rs0.5 million are protected by the Deposit Protection Corporation (DPC), a subsidiary of the SBP, and that as per regulations, deposits above this amount are not protected if a bank goes bankrupt.

Responding to the remarks, which irked sentiments among the masses, SBP said the banking system in Pakistan is sound and insurance cover of up to Rs500,000 for every depositor is an added layer of protection provided by the DPC.

It said the banking network in Pakistan is adequately capitalised, highly liquid and profitable with a low level of net non-performing loans, i.e. bad loans.

“The sector posted a strong profitability of Rs284 billion in first half of CY23, which is almost 125% higher than the first half of CY22,” it said.

“The higher earnings, in turn, also strengthened the capital of banks and the Capital Adequacy Ratio (CAR) of the banking sector increased to 17.8% by end June 2023 compared to 16.1 percent as of end June 2022, substantially higher than SBP’s minimum regulatory requirement of 11.5 percent and international standard of 10.5 percent,” it added.

“With improvement in solvency buffers, the ability of the banking sector to withstand a set of severe shocks has further improved.”

“This is in line with the best international practices and global trends,” it said.

The central bank highlighted that deposit protection is one of the key elements of safety net used by supervisory authorities and deposit protection agencies around the world to provide protection to the depositors’ funds in the unlikely event of a bank failure.

“The amount insured by the DPC becomes immediately available to depositors in case a bank fails.

“Nevertheless, remaining amounts of the deposits are also recoverable as the troubled bank is resolved through a regulatory assisted process. Currently, 94% of the depositors are fully protected under the Deposit Protection Act of 2016.”