The State Bank of Pakistan (SBP) on Thursday denied reports that bank deposits above Rs. 500,000 in the banking system are unsafe.
“Certain sections of the media, on the basis of a statement given by Deputy Governor of State Bank of Pakistan(SBP), Dr. Inayat Hussain during the meeting of the Senate Standing Committee on Finance and Revenue, are implying as if bank deposits above Rs. 500,000 in the banking system in Pakistan are unsafe. “It is categorically stated that the deposits are safe owing to a sound banking system in Pakistan under a robust regulatory and supervisory framework of SBP,” it stated.
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
SBP explained that the banking system in Pakistan is adequately capitalized, highly liquid, and profitable with a low level of net non-performing loans, i.e. bad loans. The sector posted a strong profitability of Rs284 billion in the first half of CY23, which is almost 125 percent higher than the first half of CY22.
The higher earnings, in turn, also strengthened the capital of banks and the Capital Adequacy Ratio (CAR) of the banking sector increased to 17.8 percent by end-June 2023 compared to 16.1 percent as of end-June 2022, substantially higher than SBP’s minimum regulatory requirement of 11.5 percent and international standard of 10.5 percent, said the central bank.
With improvement in solvency buffers, the ability of the banking sector to withstand a set of severe shocks has further improved.
“In addition to the soundness of the banking system, Deposit Protection Corporation (DPC) has added another layer of protection by providing insurance cover of up to Rs. 500,000 to every depositor. This is in line with the best international practices and global trends, the central bank added. Deposit protection is one of the key elements of the safety net used by supervisory authorities and deposit protection agencies around the world to provide protection to the depositors’ funds in the unlikely event of a bank failure,” it added.
SBP remarked that the amount insured by the DPC becomes immediately available to depositors in case a bank fails. Nevertheless, the remaining amounts of the deposits are also recoverable as the troubled bank is resolved through a regulatory-assisted process. Currently, 94 percent of the depositors are fully protected under the Deposit Protection Act of 2016.
