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State Bank of Pakistan (SBP) refuted reports suggesting that bank deposits exceeding Rs. 500,000 within the Pakistani banking system are at risk.
The SBP responded to these reports, which stemmed from remarks made by Dr. Inayat Hussain, the Deputy Governor of the State Bank of Pakistan, during a Senate Standing Committee on Finance and Revenue meeting. It emphasized that there is no basis to infer that deposits over Rs. 500,000 are insecure, as the robust regulatory and supervisory framework of SBP ensures the safety of these deposits.
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The SBP elaborated on the strength of the Pakistani banking system, highlighting its adequate capitalization, high liquidity, and profitability, coupled with a low level of non-performing loans (bad loans). In the first half of CY23, the sector achieved a significant profitability of Rs. 284 billion, marking a 125 percent increase compared to the first half of CY22.
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
Furthermore, these increased earnings bolstered the capital of banks, resulting in a Capital Adequacy Ratio (CAR) of 17.8 percent by the end of June 2023, up from 16.1 percent at the end of June 2022. This CAR far exceeds SBP’s minimum regulatory requirement of 11.5 percent and the international standard of 10.5 percent.
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The SBP also noted that the banking sector’s solvency buffers have improved, enhancing its ability to withstand severe shocks.
Additionally, the Deposit Protection Corporation (DPC) provides an extra layer of protection by offering insurance coverage of up to Rs. 500,000 to each depositor, aligning with global best practices. Deposit protection is a crucial component of the safety net utilized by supervisory authorities and deposit protection agencies worldwide to safeguard depositors’ funds in the unlikely event of a bank failure.
The SBP clarified that the DPC’s insured amount becomes immediately accessible to depositors if a bank experiences a failure. Nevertheless, the remaining deposit amounts are also recoverable as the troubled bank is resolved through a regulatory-assisted process. Currently, the Deposit Protection Act of 2016 extends full protection to 94 percent of depositors.
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