The State Bank of Pakistan (SBP) has issued its annual flagship publication, the Financial Stability Review (FSR) for CY25, highlighting that the financial sector grew by 15.1% during calendar year 2025.

The financial depth, measured by the assets-to-GDP ratio, increased to 67.1% while risks to financial stability subsided during the year. Banks’ balance sheet expanded by 17.8%, driven by investments in government securities.

Advances showed a year-on-year decline as of December 2025, mainly reflecting the higher base effect of last year’s advance-to-deposit ratio (ADR)-linked tax policy. However, adjusting for this base effect, the advances registered a decent growth in line with improvements in macro-financial conditions.

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 a steady credit profile and established background.

On the profitability front, the after-tax earnings posted growth; nonetheless, volume-driven earnings led to a moderation in profitability indicators. The solvency position of the sector remained strong as the capital adequacy ratio improved to 20.8% by the end of 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.