Pakistan’s financial sector showed a steady performance and expanded 27 percent in 2023 as inflation began falling, economic growth recovered and currency exchange rate stabilized in the country, the Pakistani central bank said on Friday. The State Bank of Pakistan (SBP) stated this in its annual Financial Stability Review (FSR) for 2023, presenting performance and risk assessment of various segments of the financial sector including banks, microfinance banks (MFBs), non-bank financial institutions (NBFIs), insurance, financial markets and financial market infrastructures (FMIs). It assessed financial soundness of major user of credit and financial services, viz. the non-financial corporate sector. The review highlighted that macroeconomic environment remained challenging amid rising inflation, weak foreign exchange inflows and pressures on external account and local currency, and low business confidence particularly in the first half of 2023. However, policy measures and regulatory interventions that were taken to address growing imbalances, coupled with a $3 billion bailout from the International Monetary Fund (IMF), helped improve the macroeconomic conditions in the second half. “In this backdrop, the financial sector exhibited strong growth and performance and maintained its financial soundness and operational resilience. The asset base of the financial sector expanded by 27.0 percent in CY2023, which was mainly driven by the banking sector,” the SBP said. While volatility in financial markets remained high, the financial sector particularly the banking sector remained resilient and grew by 29.5 percent. The growth in assets was primarily driven by investments in government securities while private sector advances contracted in the backdrop of stressed macro-financial conditions, according to the review. The non-bank financial sector also showed healthy performance, with the asset base of Development Finance Institutions (DFIs) and Non-Bank Financial Institutions (NBFIs) observing strong expansion. The insurance sector witnessed growth in assets and gross premium despite slowdown in economic activity. “The overall position of the non-financial corporate sector was encouraging as solvency indicators and repayment capacity remained satisfactory,” the SBP said. “Large borrowers of banking sector exhibited stable repayment capacity and there were no significant delinquencies during the year under review.” E-banking transactions continued to drive growth in retail payments in 2023 and the central bank moved to implement the third phase of ‘Raast’ payment system’s person-to-merchant (P2M) mode to facilitate digital payment acceptance for merchants and businesses. “Going forward, overall risks to financial stability appear to be manageable due to anticipated moderation of macroeconomic stress and strong buffers and risk management capabilities of the banking sector,” the bank added.