SBP says bank deposits are ‘perfectly safe’

The State Bank of Pakistan (SBP) on Thursday stated that bank deposits in the country were “perfectly safe owing to a sound banking system in Pakistan under a robust regulatory and supervisory framework”.

A press release issued by the central bank said that certain sections of the media had implied as if “bank deposits above Rs500,000 in the banking system in Pakistan are unsafe” on the basis of the statement given by SBP Deputy Governor Inayat Hussain during a meeting of the Senate Standing Committee on Finance and Revenue.

During the meeting, the SBP deputy governor had told the committee that an account holder’s deposit of up to Rs500,000 was protected by the Deposit Protection Corporation (DPC) and around 94pc of the depositors fell under this category.

On a question by Senator Saleem Mandviwalla about whether the SBP was itself protecting the deposits, Dr Inayat Hussain responded that the deposits were being protected by the DPC, which was a wholly owned subsidiary of the central bank. He also noted that no depositor had ever lost their money in the country’s financial history.

In the statement issued today, the central bank said, “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 added that the banking system was “adequately capitalised, highly liquid and profitable with a low level of net non-performing loans”.

It said that the sector had posted a “strong” profitability of Rs238 billion in the first half of the current calendar year (CY23), almost 125 per cent 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 17.8pc by end June 2023 compared to 16.1pc as of end June 2022, substantially higher than SBP’s minimum regulatory requirement of 11.5pc and international standard of 10.5pc.

“With improvement in solvency buffers, the ability of the banking sector to withstand a set of severe shocks has further improved,” the SBP said.

The central bank went on to say that in addition to the “soundness of the banking system”, the DPC had “added another layer of protection” by providing insurance cover of up to Rs500,000 to every depositor.

“This is in line with the best international practices and global trends. Deposit protection, is one of the key elements of 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 said.

It added that the amount insured by the DPC became immediately available to depositors in case a bank failed.

“Nevertheless, remaining amounts of the deposits are also recoverable as the troubled bank is resolved through a regulatory assisted process. Currently, 94pc of the depositors are fully protected under the Deposit Protection Act of 2016,” the bank said.