KARACHI: The State Bank of Pakistan (SBP) on Friday issued its annual publication viz, Financial Stability Review (FSR).
The review presents an analytical assessment of the financial sector during CY16, its associated risks and resilience analysis of the banking sector. The FSR concludes that the financial sector of Pakistan remains in a sound and stable state at the end of CY16. The performance of both the financial and non-financial sectors has improved the risk profile of the system as a whole, as the risks to the financial system remained subdued but are actually reducing. However, some emerging low to moderate level risks in the short to medium term need attention and are being closely monitored by SBP.
The financial sector has operated in a relatively challenging global environment in CY16. The review highlights some global concerns such as low world economic growth, especially slow growth in advanced economies and oil-price induced economic shocks in the Gulf Cooperation Council (GCC) countries (the major export destinations and source of remittances flows for Pakistan); international trade slowdown; rising protectionist sentiments and the policy normalisation in the US which might lead to tighter financial conditions in the Emerging Markets and Developing Economies (EMDEs). Going forward, it recommends that these developments warrant policymaker’s attention.
The review suggests that the domestic macro financial environment has been conducive in CY16: Output (both GDP and LSM) has been increasing; inflation remains subdued; exchange rate is stable amid adequate reserves; government borrowing from banking sector has receded, law and order conditions have improved and economic prospects are encouraging, more so, in view of China Pakistan Economic Corridor (CPEC). Not surprisingly, performance of the banking sector has been satisfactory and financial markets, in general, have performed smoothly. In addition, the corporate sector has also benefited from the favourable macro financial conditions and has posted robust profits.
