Pakistan’s banking sector maintained its conservative approach toward lending in June 2025, with the latest figures showing the gross advance-to-deposit ratio (ADR) slipping to 38.1 percent. This is down from 39.8 percent recorded in May and 40 percent during the same month last year, according to fresh data released by brokerage firm Arif Habib Limited (AHL).
The decline of 172 basis points on a monthly basis and 186 basis points year-on-year underscores the continued preference among banks to steer clear of extensive private sector lending, despite tentative signs of recovering credit demand in some parts of the economy. This conservative credit stance reflects the banking industry’s cautious view on overall credit risk, shaped by lingering macroeconomic challenges and uncertainties that have kept businesses wary of large-scale borrowing.
In parallel, the investment-to-deposit ratio (IDR) also edged down to 103 percent in June 2025, compared to 105.8 percent in May. However, on a yearly comparison, the IDR actually jumped by 608 basis points from 96.9 percent in June 2024. The sustained high levels of IDR point to banks’ continued strategy of deploying their liquidity into government securities, attracted by their relatively safer profiles and attractive yields compared to commercial lending.
Analysts note that this trend has been firmly in place for the past two years, with banks consistently allocating a large portion of their funds into treasury instruments. The combination of elevated government borrowing requirements and banks’ risk-averse lending policies has effectively crowded out private borrowers, restricting wider credit flow into sectors that could otherwise help spur economic activity.
Despite the restrained credit growth, Pakistan’s banking sector has witnessed a healthy expansion in its deposit base. Total deposits surged to Rs35.5 trillion in June 2025, marking an increase of 14.1 percent year-on-year and 8.5 percent month-on-month. This rise signals growing confidence among depositors and provides banks with ample liquidity to pursue investments or potential future lending opportunities.
Meanwhile, bank advances, which capture loans extended to businesses and consumers, climbed to Rs13.5 trillion in June 2025. This reflects a more modest growth of 8.7 percent on an annual basis and 3.8 percent over the previous month. The figures indicate that while there are some signs of loan demand picking up—possibly due to stabilising interest rates and slight improvements in economic sentiment—credit growth still lags behind the expansion in deposits.
Adding to this picture, total banking sector investments jumped to Rs36.6 trillion in June 2025, up by 21.2 percent year-on-year. This robust growth further highlights how banks continue to channel surplus liquidity into government debt instruments, reinforcing their cautious approach toward private credit amid persistent fiscal pressures and the need for secure returns.
Looking ahead, analysts expect the State Bank of Pakistan to maintain a watchful monetary stance, particularly in light of fiscal demands that remain high. Unless there is a sharper recovery in private sector confidence and borrowing appetite, the pattern of a high IDR paired with a subdued ADR is likely to persist in the short term. For now, Pakistan’s banking sector appears content to prioritize safety and liquidity over aggressive lending, balancing risk with steady investment in sovereign instruments.