ISLAMABAD – Global credit rating agency Fitch Ratings has forecast a brighter outlook for Pakistan’s banking sector, attributing the optimism to stabilising macroeconomic indicators and renewed economic growth. The agency expects the country’s GDP to grow by 3.5 percent in the fiscal year 2026–27, alongside inflation moderating to around 5 percent—marking a substantial improvement from previous years.
In its analysis, Fitch highlighted that the decline in inflation—from a peak of 38 percent in May 2023 to approximately 4.1 percent in July 2025—and the halving of the policy rate to 11 percent have created a more favourable operating environment. These conditions, coupled with reduced currency volatility and improvements in the current account, are paving the way for enhanced performance across the banking sector.
Fitch noted that under these conditions, banks are well-positioned to expand business volumes, with recovered credit demand driving stronger loan and deposit growth. The agency also pointed to the banking sector’s improved resilience—evidenced by a decline in impaired loans to 7.1 percent by March 2025 and sustained capital adequacy levels at around 21 percent—as further supporting this positive trajectory.
However, the agency issued a note of caution. Despite the stabilisation, Pakistan’s operating environment remains fragile, and banks continue to be heavily exposed to sovereign risk due to their large holdings of government securities and lending to state-linked entities.
Nevertheless, the overall outlook remains encouraging: as macroeconomic headwinds ease, both public confidence and financial sector fundamentals are showing signs of recovery—setting the stage for more robust banking activity and sustainable growth.
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