Financial system performs well, remains resilient in 2021: SBP Review.

KARACHI -- State Bank of Pakistan - in its annual flagship publication, the Financial Stability Review for the calendar year 2021 issued on Tuesday - said during the period Pakistan's financial sector performed well and remained resilient despite COVID-19 pandemic shocks.

The Review presents 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 assessment of global dynamics highlights that due to the better management of pandemic and an extensive vaccine inoculation drive, the ensuing recovery in world economic activity that started in second half of 2020 got further traction in 2021. However, supply chain disruptions fueled inflationary pressures and the recurring waves of new COVID-19 variants continued to pose challenges to the global economic activity and financial markets.

The review highlights that the domestic economy navigated through two COVID-19 waves during CY21 without significant impact due to effective management of the pandemic, which facilitated a strong revival in economic activity.

The GDP grew by 5.7 percent in fiscal year 2020-21 (against 1.0 percent contraction in fiscal year 2019-20), and the momentum got further traction in financial year 2021-22 to post an estimated growth of 6.0 percent. However, the robust recovery in demand and rising international commodity prices, especially oil, led to external account pressures. Accordingly, SBP took a number of macro-prudential and monetary policy measures to stabilize the external account, moderate the domestic demand and address associated risks.

In the context of strong economic expansion, financial sector manifested steady performance while its financial and operational resilience remained intact. The financial sector's asset base expanded by 15.6 percent in 2021, while financial markets observed a relatively contained volatility compared to last year.

The FSR indicates 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 non-performing loans ratio...