In a recent meeting of the Senate Standing Committee on Finance and Revenue, Deputy Governor of the State Bank of Pakistan (SBP), Dr. Inayat Hussain, clarified that the central bank provides insurance cover of up to Rs500,000 to every depositor in the event of a bank default.
However, certain media reports seemed to imply that deposits exceeding Rs500,000 might be unsafe. This led to concerns among individuals with deposits exceeding this amount.
The SBP swiftly responded to these reports, emphasizing, “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.”
The banking system in Pakistan is described as well-capitalized, highly liquid, and profitable, with a low level of bad loans. In the first half of CY23, the sector saw a robust profitability of Rs284 billion, a significant increase from the first half of CY22.
This increased profitability has also bolstered the capital of banks, leading to an improved Capital Adequacy Ratio (CAR) of the banking sector, which stood at 17.8 percent by end June 2023. This is well above SBP’s minimum regulatory requirement of 11.5 percent and the international standard of 10.5 percent.
The Deposit Protection Corporation (DPC) further enhances the safety net. It offers insurance cover of up to Rs500,000 to every depositor, aligning with global best practices. Deposit protection is a crucial element in safeguarding depositors’ funds in the unlikely event of a bank failure.
In case of a bank failure, the insured amount provided by the DPC becomes immediately available to depositors. The remaining amounts of the deposits are also recoverable as the troubled bank is resolved through a regulatory assisted process. Currently, 94% of depositors are fully protected under the Deposit Protection Act of 2016.
