The State Bank of Pakistan in clarification over its warning that depositors could lose their deposits in banks, said that the banking system in Pakistan is stable the deposit system is safe and there is sufficient capital in the system.

The statement issued said Pakistan has improved its ability to withstand severe shocks in the banking sector under a strong legal framework– Deposit Protection Corporation (DPC).

“The profitability of the banking system has increased by about 125 percent,” he added.

“DPC has provided an insurance cover of up to Rs0.5 million to each depositor,” State Bank said.

“In case of failure of a bank, the amount insured by DPC is immediately available to depositors and according to the regulation, after the settlement of the bank, the remaining amount of the deposits can also be withdrawn,” the central bank clarified.

In a statement issued, SBP said: "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.

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 adequately capitalized, highly liquid, and profitable with a low level of net non-performing loans, i.e. bad loans.

"The sector posted a strong profitability of Rs284 billion in the 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 the end of 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.

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. Deposit protection is one of the key elements of the 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, the 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.

Earlier, the deputy governor of the State Bank of Pakistan (SBP) has warned depositors that only amounts up to Rs0.5 million (or 500,000 rupees) are legally protected in banks in Pakistan.

This means that if a bank fails, depositors with more than this amount in their accounts will not be guaranteed compensation.

In a briefing to the Senate Standing Committee on Finance on Wednesday, the deputy governor said that 94% of account holders in Pakistan have deposits of less than Rs0.5 million while only 6% have deposits of more than that.