Financing post COVID-19 business revival and economic recovery: Stress Testing of Banking Sector of Pakistan

Abstract

The role of banking sector in post COVID-19 revival of business and economic recovery will be very critical which, in turn, depends on financial soundness of the sector. This study not only evaluates the financial soundness of the banking sector of Pakistan but also assesses the ability of banking sector to respond to financial pressures in the times of crisis, i.e. COVID-19 pandemic in this case. For this, IMF’s Bankometer S-score model has been employed. Data for the financial assessment of all the banks in industry and top 10 banks with largest share in market for a period of six years (2014-2019) has been used for the stress testing. The findings suggest that banking sector in general and major banks of the country in particular are in exceptionally sound financial position. In other words, banking sector of Pakistan has the ability to fully finance post COVID-19 revival of businesses for economic recovery.