Pakistan’s banks have enjoyed bumper profits and some of the highest returns in Asia in recent months, as two years of sky-high interest rates have driven a boom in earnings from the government debt that dominates their balance sheets.

Seven of the 15 banks with the highest second-quarter total returns in the Asia-Pacific region are in Pakistan, including Standard Chartered Pakistan and Bank Alfalah, according to S&P Global. After-tax profit in the entire banking sector almost doubled to Rs642.2bn ($2.3bn) in 2023, according to the State Bank of Pakistan. During the same year, the economy of the world’s fifth most populous country contracted amid one of Asia’s worst recent economic crises.

The past two years, during which the SBP jacked up interest rates to about 20 per cent to curb inflation that reached as high as 38 per cent in June 2023, had been “party time for the banks”, said Mohammed Sohail, chief executive of Topline Securities, a brokerage.