Qudsia Bano

Pakistan's banking industry has not only maintained its sound financial position but has also strengthened the safety net for depositors by providing them with additional protection through the Deposit Protection Corporation (DPC). The DPC has taken significant steps to fortify the security of bank depositors, providing insurance coverage of up to Rs500,000 to every account holder. The soundness of Pakistan's banking system is underscored by its adequate capitalisation, high liquidity, and impressive profitability. In the first half of the calendar year 2023 (CY23), the banking sector posted a robust profitability figure of Rs284 billion. This represents an astonishing 125% increase compared to the first half of CY22. The improved earnings have further strengthened the capital reserves of banks, raising the Capital Adequacy Ratio (CAR) of the banking sector to an impressive 17.8% by the end of June 2023.

This stands substantially above the State Bank of Pakistan's (SBP) minimum regulatory requirement of 11.5% and the international standard of 10.5%. In addition to the intrinsic strength of the banking sector, the Deposit Protection Corporation has introduced a new level of safeguarding for depositors. This move aligns with global standards and trends in deposit protection. In case of a bank failure, the DPC now insures deposits of up to Rs500,000, ensuring that depositors have immediate access to their insured funds. Shahid Javed, a senior economist at State Bank of Pakistan, told WealthPK this enhanced protection of bank deposits not only assures the security of the hard-earned money of depositors but also bolsters confidence in Pakistan's banking system. “In uncertain times, this move by Deposit Protection Corporation further solidifies the nation's financial stability, instilling faith in the safety and security of the banking sector.”

He said the banking industry has boosted its solvency buffers, which shows its strength and resilience. This also gives depositors more security, as the banks can cope with major financial shocks.. Javed said that the DPC's proactive measures demonstrate the commitment to safeguarding the interests of depositors and the resilience of the banking sector, making it a more secure and attractive place to entrust one's financial assets. “This commitment aligns with the best global standards and is a testament to the country's dedication to promoting a stable and secure banking environment.” The SBP economist said that it is important to note that in the case of a troubled bank, the remaining deposit amounts are also recoverable as the issue is resolved through a regulatory-assisted process. “Currently, an impressive 94% of depositors are fully protected under the Deposit Protection Act of 2016,” he said.

Credit: INP-WealthPk