Financial system’s performance, resilience remained steady with 15% growth in CY25: SBP

The State Bank of Pakistan (SBP), releasing the Financial Stability Review (FSR) for CY25 on Tuesday, stated that the financial sector grew by 15.1% maintaining operational and financial resilience amid improved domestic macroeconomic conditions and subsided risks during 2025

KARACHI, (APP - UrduPoint / Pakistan Point News - 5th May, 2026) The State Bank of Pakistan (SBP), releasing the Financial Stability Review (FSR) for CY25 on Tuesday, stated that the financial sector grew by 15.1% maintaining operational and financial resilience amid improved domestic macroeconomic conditions and subsided risks during 2025.

In backdrop of the potential challenges emerging from the Middle East situation, the central bank expressed confidence that the strong financial cushions along with supervisory and crisis management frameworks reinforce the stability of the banking sector that exhibited resilience to withstand even severe shocks in 3-year projections.

The central bank’s annual flagship publication for Calendar Year 2025, according to a statement issued here, presents the performance and risk assessment of various segments of the financial sector. including banks, microfinance banks (MFBs), development finance institutions (DFIs), non-bank financial institutions (NBFIs), insurance, financial markets and financial market infrastructures (FMIs) as well as the non-financial corporate sector, a major user of bank credit.

The financial sector grew by 15.1% and maintained operational and financial resilience during CY25. Encouragingly, the financial depth, as measured by assets-to-GDP ratio, increased to 67.1% while risks to financial stability subsided during CY25, the Review highlighted.

Depicting further improvement in the domestic macroeconomic conditions during CY25, the Review observed that amid well-calibrated policy measures, inflation eased and fell within target range and economic activity continued to gain momentum.

Meanwhile, contained current account deficit and strategic purchases in the interbank market helped SBP build up its FX reserves while Extended Fund Facility (EFF) reviews and Resilience and Sustainability Facility (RSF) arrangements were successfully completed.

Noting smooth and seamless functioning of the money, forex and equity segments of the financial market, the Review also indicated that the average volatility in domestic markets witnessed an uptick mainly driven by the equity market which posted substantial gains despite trade-tariff uncertainties and a few events of geopolitical tensions.

Besides the calm forex market, the banking sector continued to exhibit steady performance and resilience. The Review noted that banks’ balance sheets expanded by 17.8%, driven by investments in government securities while a healthy revival in mobilization of deposits eased banks’ reliance on borrowings.

Asset quality indicators improved, as non-performing loans (NPLs) to gross loans ratio declined to 6.1% in December 2025 from 6.3% last year. On a net basis, however, the credit risk remained low as the provisioning coverage of NPLs further improved to 107.

7% and a large part of the credit portfolio comprised rated borrowers with steady credit profile and established background, it stated.

The Review observed that, on the profitability front, the after-tax earnings posted growth but volume-driven earnings led to moderation in profitability indicators. The solvency position of the sector remained strong as capital adequacy ratio improved to 20.8% by end December 2025 and remained well above the minimum international and local regulatory benchmarks.

Within the banking sector, Islamic banking institutions witnessed the highest ever expansion in branch network and continued their growth momentum along with strong capital buffers and muted credit risk and steady earnings. Under-stress Microfinance banks (MFBs) sector recorded significant reduction in losses during CY25 as the recapitalization and restructuring efforts started to mature.

The Review noted mixed performance of the non-bank financial sector where the asset base of DFIs contracted while NBFIs grew at a decent pace. The insurance sector maintained a strong performance during the year.

The debt servicing capacity of the non-financial corporate sector improved owing to declining finance cost, driven by

easing of monetary policy stance, although the sector experienced revenue pressures and moderation in earning indicators. Moreover, the credit worthiness and repayment capacity of the large borrowers of the banking sector also remained sound during CY25.

The Review highlights a steady performance and operational resilience of Financial Market Infrastructures (FMIs) during CY25, in which digital transactions continued to drive the volume of financial transactions, it stated counting on the policy initiatives undertaken to further strengthen the FMIs, including PRISM+, QR code-based payments through RAAST and transition to T+1 settlement mechanism.

The FSR, mentioning the potential challenges to financial stability prospects due to uncertainty around the Middle East conflict, expressed confidence that the strong financial cushions, prudent and time-tested supervisory and crisis management frameworks together provide comfort to the banking sector’s stability.

Referring to the latest stress tests, the Review informed that the results indicated that “the banking sector in general and large systemically important banks in particular exhibit resilience to withstand even severe shocks over the projected horizon of three years.”

SBP, anticipating emerging challenges and risks, expressed determination to continue its efforts in coordination with stakeholders to achieve its statutory mandates of ensuring price and financial stability to meaningfully contribute to promotion of sustainable economic growth.