ISLAMABAD: The State Bank of Pakistan (SBP) on Thursday clarified that the deposits exceeding Rs500,000 in the Pakistani banking system are perfectly safe within Pakistan’s resilient banking sector, underpinned by a robust regulatory and supervisory framework meticulously maintained by the SBP.
It said that certain sections of the media have recently raised concerns based on a statement made by the Deputy Governor of the State Bank of Pakistan (SBP), Dr. Inayat Hussain, during a meeting of the Senate Standing Committee on Finance and Revenue. These concerns imply that bank deposits exceeding Rs500,000 in the Pakistani banking system may be unsafe.
It is crucial to clarify that such deposits remain secure due to a robust banking system in Pakistan, which operates within a strong regulatory and supervisory framework established by the SBP.
The Pakistani banking system is well-capitalized, highly liquid, and profitable, with low net non-performing loans or bad loans. In the first half of CY23, the sector demonstrated robust profitability, amounting to Rs284 billion, marking a substantial increase of almost 125 percent compared to the first half of CY22.
These higher earnings have also strengthened the capital positions of banks. The banking sector’s Capital Adequacy Ratio (CAR) reached 17.8 percent by the end of June 2023, compared to 16.1 percent as of June 2022.
1/2 #SBP clarifies that bank deposits are perfectly safe owing to a sound banking system in Pakistan under a robust regulatory and supervisory framework. See PR: https://t.co/zLD1B94RdO#SBPClarification pic.twitter.com/d6O2hu9Dun
— SBP (@StateBank_Pak) October 5, 2023
This CAR is significantly higher than SBP’s minimum regulatory requirement of 11.5 percent and the international standard of 10.5 percent. The improved solvency buffers further enhance the banking sector’s ability to withstand severe economic shocks.
In addition to the financial strength of the banking system, the Deposit Protection Corporation (DPC) offers an additional layer of protection. It provides insurance coverage of up to Rs500,000 to each depositor, aligning with international best practices and global trends.
Deposit protection is a crucial element of the safety net employed by supervisory authorities and deposit protection agencies worldwide to safeguard depositors’ funds in the rare event of a bank’s failure.
In such an occurrence, the insured amount is immediately available to depositors. However, it’s important to note that the remaining portions of deposits are also recoverable through a regulatory-assisted resolution process when a troubled bank faces difficulty. Currently, the Deposit Protection Act of 2016 ensures that 94% of depositors are fully protected in Pakistan.
