These Were the Major Developments in Pakistan’s Banking Sector in 2024

Pakistan’s banking sector maintained robust growth during 2024, experiencing a profitable trajectory, expansion in operations, and attractive returns on assets and equity despite macroeconomic challenges and political uncertainty. Most banks recorded unprecedented profits due to all-time high policy rates and easy money from government securities. While there was growth in profits and assets, banks’ initiatives remained limited. Pakistan’s parliament passed a historic constitutional amendment bill mandating the elimination of all forms of “Riba” or interest by January 1, 2028. This move is expected to promote Islamic banking in the country. The Federal Shariat Court (FSC) had already issued a verdict in April 2022 for ending interest-based banking within five years. However, this decision was initially challenged by leading commercial and public-sector banks on behalf of the government. The federal coalition government later withdrew its petition. Many commercial banks have begun transitioning to Shariah-compliant systems, with microfinance banks, digital banks, and fintech operators expected to follow suit. United Bank Limited (UBL) is poised to acquire Silkbank through a share swap agreement. UBL’s shareholders approved the merger scheme, though regulatory approval is still pending. The process has faced a legal complication from Park View Enclave, potentially complicating the transaction. Previously, UBL attempted to acquire two microfinance banks—Telenor and Khushhali—but failed to finalize those deals. Now, UBL aims to merge its operations with Silkbank, offering one new ordinary share for every 325 shares of Silkbank Limited. A similar formula was used in the 2017 merger of MCB Bank and NIB Bank. In November, Pakistan’s banking regulator signed a Memorandum of Understanding (MoU) with the Arab Monetary Fund to integrate RAAST and Buna systems. This collaboration aims to facilitate cross-border remittances between Pakistan and the Arab region through formal banking channels. Remittance inflows from Gulf states to Pakistan are projected to exceed $35 billion this year. In 2023, the State Bank of Pakistan allowed banks to establish exchange companies to regulate currency exchange operations, previously dominated by standalone exchange companies. By 2024, major banks like Meezan Bank, Allied Bank, United Bank Limited, and Bank Al Habib had established their subsidiaries. The central bank launched the RAAST Person-to-Merchant (P2M) payment system to digitize the country’s retail sector. Operators such as Payfast, 1Link, Paysys, Easypaisa, and Zindigi have adopted the system. The banking regulator set a March 2025 deadline for e-commerce and online shopping stores to integrate with RAAST P2M. The central bank introduced regulatory measures to boost SME financing in 2024, a critical economic sector contributing 40 percent to GDP and employing 80 percent of the non-agricultural workforce. The per-party exposure limit was raised to Rs. 100 million for small enterprises and Rs. 500 million for medium enterprises. A new financing scheme with 10–20 percent risk coverage was approved to double SME financing to Rs. 1.10 trillion by 2029. However, high interest rates remain a challenge for SMEs. Policy rates remained at a historic peak of 22% until May 2024, after which they were slashed five times to 13%. High rates curtailed private sector lending but boosted deposits to an all-time high of Rs. 31.4 trillion by November 2024. Banks introduced fees for high-end depositors and invested heavily in government securities. Islamic banking saw remarkable growth in 2024, with assets reaching nearly Rs. 10 trillion and deposits hitting Rs. 8 trillion. The branch network expanded to over 4,500, creating employment opportunities. The central bank revamped criteria for branch conversions and mandated Islamic Banking Institutions (IBIs) to pay at least 75 percent of gross yield as profit on PKR savings deposits. Meezan Bank faced a cyberattack in which customer debit card data was stolen, leading to unauthorized transactions. The bank compensated affected customers and urged them to change their credentials. To address emerging challenges, the State Bank of Pakistan established new departments in 2024. Accordingly, all member financial institutions (FIs) will submit the month-end data for December 2024 under the new eCIB system (V2) by January 10, 2025, through the Data Acquisition Portal.