The State Bank of Pakistan (SBP) has cautioned that the recent wave of torrential rains and flooding may test the country’s fragile economic recovery, even as banking and financial indicators remain steady. In its Mid-Year Performance Review for 2025, the central bank pointed to subdued inflation, a relatively stable exchange rate, prudent fiscal management, and an improved credit rating as key supports for recovery. Yet, it warned that damage from floods could weaken the repayment capacity of agricultural borrowers and strain fiscal accounts.
The report, covering January to June 2025, noted that despite contractions in lending, the banking sector expanded its asset base by 11 percent, with deposits rising sharply by 17.7 percent. Non-performing loans declined, while higher provisions kept credit risk muted. SBP stressed that the banking industry remains resilient, backed by strong solvency with the Capital Adequacy Ratio improving to 21.4 percent—well above regulatory requirements.
Looking ahead, the central bank projects steady sector performance in the second half of 2025, with lending expected to rise as financial conditions ease and export demand picks up, particularly in textiles. However, it emphasized that heavy floods, coupled with geopolitical risks, could temper fiscal consolidation and slow recovery momentum. The SBP reaffirmed confidence in the sector’s resilience, citing stress tests that show banks well-positioned to absorb potential shocks.
