SBP says banks remain resilient in H1 2026

KARACHI: Pakistan’s banking sector remained resilient in the first half of 2026, with its balance sheet expanding 9.1 percent as banks increased investments in government securities and lending, while lower non-performing loans and strong capital buffers eased financial stability risks, the central bank said on Monday.

The State Bank of Pakistan, in its mid-year performance review of the banking sector for January-June 2026, said that advances increased across public and private segments. Encouragingly, long-term financing to SMEs kept trending upward during the first half of 2026. In addition, mortgage loans gained further traction largely due to the government’s subsidised scheme. On the funding side, banks mobilised additional deposits of Rs3,673 billion during the reviewed period.

“The review suggests that the credit risk of the banking sector posed no serious concerns to financial stability during H1CY26, the SBP said in the statement. As a result of a significant reduction in non-performing loans and an increase in advances, the NPL-to-loans ratio fell to 5.5 per cent in June 2026 (6.1 per cent in December 2025). Positively, the provisioning coverage ratio further improved to 110.2 percent in June 2026 from 107.7 per cent in December 2025. The relative increase in the sector’s earnings was, however, moderate. Consequently, Return on Assets (ROA) and Return on Equity (ROE) softened to 1.1 per cent (1.3 per cent in June-205) and 19 per cent (21.3 per cent in June 2025), respectively, in June 2026. The solvency position of the sector, with CAR at 19.6 per cent, remained strong during H1CY26. The latest macro stress tests indicate that the banking sector in general and large systemically important banks in particular are expected to remain solvent, exhibit resilience, and can withstand even severe shocks over the projected horizon of two years.

“The review highlights that stress in the equity market increased during H1CY26 while FX and money markets witnessed calmer conditions,” the SBP said.“Increased volatility in the equity market was mainly driven by adverse geopolitical developments in the Middle East,” it added.

“The latest wave of the Systemic Risk Survey reveals volatility in commodity prices, including oil, as the top-tier risk, followed by global geopolitical risk. The respondents, however, expressed confidence in the financial system stability and regulators’ ability to ensure financial stability.”