Banks record 11% asset growth in first half 2025: SBP

September 11, 2025 (MLN): Banks managed to grow their asset base by 11.0% in H1CY25, according to the State Bank of Pakistan's (SBP) Mid-Year Performance Review of the Banking Sector.

The banking sector demonstrated steady performance and maintained adequate buffers during the first half of 2025, with government securities investments primarily driving the asset growth as the government continued to rely heavily on banking sector funding.

However, the sector faced headwinds in lending activities, with advances contracting across both public and private sectors.

Despite this overall decline, there was a bright spot in fixed investment advances to small and medium enterprises (SMEs), which continued to expand during the review period.

On the funding side, Pakistani banks achieved impressive deposit growth of 17.7% during H1CY25, significantly reducing their reliance on borrowings and strengthening their liquidity position.

This robust deposit mobilization provided banks with a stable funding base amid challenging market conditions.

The Review indicates that credit risk in the banking sector remained well-contained throughout the period.

While non-performing loans (NPLs) declined in absolute terms, the contraction in overall advances led to a marginal deterioration in the gross NPLs to loans ratio, which reached 7.4% by June 2025.

However, the sector's risk profile on a net basis remained favorable, with banks maintaining higher provisions for loan losses.

The net NPLs to net loans ratio stood at negative 0.5%, reflecting minimal risk exposure when accounting for adequate provisioning.

Earnings performance remained stable across the banking sector, supported by growing volumes of earning assets.

Return on Assets (ROA) maintained its position at 1.3%, unchanged from December 2024 levels, while Return on Equity (ROE) remained robust at 21.3%, only slightly down from 21.5% recorded in December 2024.

The solvency position of the banking sector strengthened further during the review period, with the Capital Adequacy Ratio (CAR) improving to 21.4% from 20.6% in December 2024.

This level remains significantly above the minimum regulatory requirement, providing substantial buffer for potential future shocks.

Recent stress test results conducted by the SBP reveal encouraging findings about the sector's resilience.

The tests indicate that the banking sector's CAR is expected to remain comfortably above the minimum regulatory requirement of 11.5% under both baseline scenarios and hypothetically severe stressed macro-financial conditions over a two-year forecast horizon.

The results demonstrate the sector's strong capacity to withstand potential shocks to both credit and market risk factors, reinforcing confidence in the banking system's stability.

Financial markets experienced relatively higher volatility in H1CY25 compared to the second half of 2024, primarily driven by equity market fluctuations.

These movements were attributed to short-lived impacts from trade tariff uncertainties and ongoing geopolitical tensions affecting investor sentiment.

The latest Systemic Risk Survey, which captures views from independent experts on current and potential future risks to financial stability, identified geopolitical risk as the primary concern.

However, respondents expressed confidence in the overall stability of the financial system and the regulator's capability to manage unforeseen shocks effectively.

The Mid-Year Performance Review paints a picture of a banking sector that has successfully navigated challenging conditions while maintaining its fundamental strength.

Despite pressures on lending growth, the sector's strong capital position, improved deposit funding, and contained credit risks position it well to support economic recovery and growth in the coming periods.

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