KARACHI: Pakistan’s financial system remained stable and resilient in 2025, the central bank said on Tuesday, while warning that the war in Iran could pose risks to financial stability going forward.
The State Bank of Pakistan (SBP), in its Financial Stability Review 2025, said the sector showed considerable progress during the calendar year (CY25), supported by easing inflation, improved macroeconomic conditions and stronger external buffers.
Pakistan has been stabilizing its economy after a period of external financing stress, with policymakers relying on tight monetary policy and an International Monetary Fund (IMF) program, even as the country remains exposed to external shocks through energy imports and global financial conditions.
The review said financial markets functioned smoothly, with money, foreign exchange and equity segments operating without major disruption, although volatility increased in equities amid trade-related uncertainty and geopolitical developments.
“The financial sector grew by 15.1 percent and maintained operational and financial resilience during CY25,” the SBP said in the report.
The banking sector maintained steady performance, with balance sheets expanding and asset quality improving as the ratio of non-performing loans declined to 6.1 percent by December 2025 from 6.3 percent a year earlier. The sector’s capital adequacy ratio rose to 20.8 percent, well above regulatory requirements.
Foreign exchange reserves improved during the year due to a contained current account deficit and the central bank’s purchases in the interbank market, the review said, while successful program reviews under the IMF also supported stability.
The report noted mixed performance across non-bank financial institutions, with insurance companies posting strong growth while development finance institutions saw a contraction in assets.
Microfinance banks remained under stress but recorded a reduction in losses as recapitalization and restructuring efforts took effect.
“Going forward, the uncertainty around the Middle East conflict may pose challenges to financial stability prospects,” the SBP said. “However, the strong financial cushions, prudent and time-tested supervisory and crisis management frameworks together provide comfort to the banking sector’s stability.”
