The State Bank of Pakistan (SBP) has released its annual flagship publication, the Financial Stability Review (FSR) for CY22. This review provides a comprehensive assessment of the performance and risks in various segments of the financial sector, including banks, non-bank financial institutions, financial markets, financial market infrastructures, and non-financial corporates.
Resilience of the Financial Sector in Turbulent Times
Despite a challenging economic environment, Pakistan’s financial sector displayed resilience against multiple headwinds. The country faced existing economic imbalances compounded by an unfavorable external environment, including twin deficits, high inflation, catastrophic flooding, delayed IMF program reviews, and global challenges such as rising commodity prices and monetary tightening by major central banks in advanced economies. However, the financial sector demonstrated steady performance, with an 18.3 percent growth in its asset base during CY22, primarily driven by the banking sector.
Policy Measures and Performance of Key Financial Segments
The FSR highlights the policy measures undertaken by the SBP and the government to address widening imbalances. These measures included an increase in the policy rate, macro-prudential policies related to consumer financing, administrative measures to contain external imbalances, and more. As a result, the current account deficit improved by the end of the year, while the overall economic momentum weakened, with a meager 0.29 percent GDP growth in FY23.
The FSR emphasizes the strong growth of the banking sector, with a 19.1 percent increase in assets despite increased market volatility. This growth was mainly driven by investments, while advances experienced a slowdown. Although deposits observed a notable slowdown, banks relied on substantial borrowings. Encouragingly, credit risk remained contained, with a decrease in the gross non-performing loans (NPLs) ratio to 7.3 percent by the end of CY22. Net NPLs ratio slightly increased to 0.8 percent but remained at one of the lowest levels in the last two decades.
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