Pakistan’s banking sector is anticipated to suffer a significant blow to its balance sheet, with over Rs 600 billion in revaluation reserves expected to be wiped out in a single quarter, as per a report by The Express Tribune. The rapid increase in bond yields has led to a depletion of the buffer that banks had accumulated in recent periods, essentially resetting the sector’s financial strength. Secondary market yields surged by approximately 150 basis points from December 2025 to March 2026, causing a notable decline in the value of government securities held by banks and resulting in substantial mark-to-market losses.
The report highlights that gross revaluation losses are estimated at about Rs 685 billion in Pakistani rupees. Factoring in existing reserves, major banks are projected to face a net deficit of nearly Rs 95 billion. Among these, United Bank Limited (UBL) in Pakistan is expected to bear the brunt, with an estimated post-tax impact of Rs 117 billion on its book value. Meanwhile, Habib Bank Limited (HBL) and National Bank of Pakistan (NBP) could incur losses of around Rs 54 billion and Rs 45 billion, respectively.
The report cautions that risks to the banking sector have significantly escalated in the current environment of rising yields, with the potential for further interest rate hikes to erode Common Equity Tier-1 (CET-1) capital ratios. This could compel banks to adopt more conservative capital and dividend policies. The pressure primarily arises from mark-to-market adjustments on banks’ substantial holdings of government debt.
Moreover, the spike in yields is attributed to the increased dependence on short-term liquidity support, with the State Bank of Pakistan’s open market operations now funding approximately 24% of domestic debt. Additionally, over half of Pakistan’s public debt is now tied to floating-rate instruments, heightening the impact of interest rate fluctuations on bank earnings and capital, according to the report.
