New Delhi: Pakistan’s banking industry is facing significant pressure on its balance sheets as rising bond yields are projected to erode more than Rs 600 billion in revaluation reserves in just one quarter, according to a new report.

The findings, reported by The Express Tribune, suggest that a sharp shift in the fixed-income market has weakened the financial buffer built by banks in recent quarters, effectively reducing the sector’s overall balance sheet strength.

Sharp rise in yields triggers losses

Between December 2025 and March 2026, secondary market yields increased by around 150 basis points. This sudden rise has led to a decline in the value of government securities held by banks, resulting in substantial mark-to-market losses.

The report estimates gross revaluation losses at approximately Rs 685 billion (Pakistani rupees).

Net impact after adjustments

After accounting for existing reserves, the net impact across major banks is projected to be a deficit of nearly Rs 95 billion.

The report highlights that the pressure is uneven across the sector, with some banks expected to be more heavily affected than others.

Impact on major banks

Among individual lenders, United Bank Limited (UBL) is expected to bear the highest impact, with an estimated post-tax reduction of Rs 117 billion in its book value.

Habib Bank Limited (HBL) and National Bank of Pakistan (NBP) are also projected to face losses of around Rs 54 billion and Rs 45 billion respectively.

Rising financial risks for the sector

The report warns that risks in the banking sector have increased significantly in the current rising yield environment. It notes that any further increase in interest rates could weaken Common Equity Tier-1 (CET-1) capital ratios, potentially forcing banks to adopt more cautious capital allocation and dividend policies.

A key driver of the pressure is the mark-to-market adjustment on large holdings of government debt by banks.

Liquidity conditions add to pressure

The rise in yields has also been linked to greater dependence on short-term liquidity support. According to the report, the State Bank of Pakistan’s open market operations are currently financing around 24 percent of domestic debt.

Debt structure increasing volatility

In addition, more than 50 percent of Pakistan’s public debt is now tied to floating-rate instruments. This structure has increased the transmission of interest rate fluctuations into both bank earnings and capital positions, further amplifying sector-wide volatility.

Agency inputs