Financial system performs well, remains resilient, says Financial Stability Review 2021.

ISLAMABAD -- The Financial Market Infrastructures (FMIs) remained resilient and continued to perform efficiently without any major disruption, said the State Bank of Pakistan's (SBP) flagship publication the Financial Stability Review (FSR) for the calendar year 2021 issued on Tuesday.

The Review presented the performance and risk assessment of various segments of the financial sector, including banks, non-bank financial institutions, financial markets, financial market infrastructures and non-financial corporates.

The FSR indicated that the banking sector - the major part of the financial system - posted a strong growth of 19.6 percent (CY20: 14.2 percent), which was particularly aided by a surge in private sector advances.

The expansion was well supported by healthy deposits growth of 17.3 percent, while banks also increased reliance on borrowing from the banking system.

Encouragingly, credit risk of the banking sector remained contained as gross NPLs (non-performing loans) ratio declined by 130 bps to 7.9 percent, while provisions coverage ratio improved by 291 bps to 91.2 percent. Accordingly, net NPLs ratio declined to 0.7 percent, indicating lower residual risk to the solvency from delinquent loans.

On the performance front, the earning indicators observed improvement as ROA (return on assets) stood at 1 percent and ROE (return on equity) improved to 14.1 percent.

Due, in part, to the improved earnings, banks' solvency remained strong as reflected in the high Capital Adequacy Ratio of 16.7 percent that stayed well above the minimum domestic regulatory benchmark of 11.5 percent and international benchmark of 10.5 percent.

The Islamic banking segment also posted strong performance with a 30.6 percent increase in its asset base during CY21, extending their share by 160 bps to 18.6 percent in the banking sector.

Microfinance Banks, which exhibited a reasonable growth, observed an inch up in infection rate and deterioration in earning indicators.

From the demand side perspective, the FSR revealed that the Non-Financial Corporate sector showed a marked improvement in profitability, business turnover, efficiency and debt repayment capacity. While this improvement boded well for credit risk of the financial system, it also signified a likely boost in the corporate sector's demand for financial products and services.

It said the central bank launched Pakistan's Instant Payment System, Raast, which marked a major step towards implementing the...