Are bank deposits above Rs500,000 unsafe in Pakistan?

KARACHI – The State Bank of Pakistan (SBP) has categorically stated that the deposits are safe owing to a sound banking system in Pakistan under a robust regulatory and supervisory framework of the central bank.

The SBP issued a statement after certain sections of the media, on the basis of a statement given by Deputy Governor of State Bank of Pakistan(SBP), Dr. Inayat Hussain during the meeting of Senate Standing Committee on Finance and Revenue, are implying as if bank deposits above Rs500,000 in the banking system in Pakistan are unsafe.

The banking system in Pakistan is adequately capitalized, highly liquid and profitable with a low level of net non-performing loans, i.e. bad loans, it said, adding that the sector posted a strong profitability of Rs284 billion in first half of CY23, which is almost 125 percent 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 17.8 percent by end June 2023 compared to 16.1 percent as of end June 2022, substantially higher than SBP’s minimum regulatory requirement of 11.5 percent and international standard of 10.5 percent.

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

The central bank however maintained that Deposit Protection Corporation (DPC) provides insurances cover of only up to Rs500,000 if a bank files bankruptcy.  

“In addition to the soundness of the banking system, Deposit Protection Corporation (DPC) has 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,” reads the official statement.

 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.

The amount insured by the DPC becomes immediately available to depositors in case a bank fails.

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