Pakistan’s scheduled banks recorded a slight contraction in deposits during October, a development that highlights both short-term liquidity pressures and a broader structural shift underway in the country’s financial sector. According to the latest figures from the central bank, total deposits edged down by 0.2 percent to Rs35.15 trillion, compared to Rs35.21 trillion at the end of September. The monthly decline is marginal, yet it arrives after an extended period of uninterrupted deposit growth spanning several years, hinting at the first signs of emerging pressures that could influence banking activity in the months ahead.
Despite the month-on-month reduction, the year-on-year numbers present a contrasting picture. Deposits in October showed a solid 13 percent increase compared to the Rs31.12 trillion reported during the same month last year. This demonstrates that deposit mobilization remains resilient over the long term, driven by continued expansion in the formal banking network, rising digital onboarding, and persistent preference among savers for secure, regulated financial channels.
In contrast to deposits, total advances experienced a sharper decline. Scheduled banks’ advances fell by 1.3 percent month-on-month, dropping from Rs13.46 trillion in September to Rs13.28 trillion in October. The year-on-year comparison indicates a more concerning trend, with advances down 3.6 percent from Rs13.78 trillion in October of the previous year. This weakening of credit activity pushed the Advances to Deposit Ratio to 37.8 percent, reflecting a drop of 44 basis points from September and a substantial decline of 650 basis points on an annual basis. The data illustrates a clear pullback in private-sector lending as banks opt for more conservative balance sheet strategies in the face of economic uncertainty.
While bank lending continues to weaken, investments recorded yet another month of growth. Investments rose 2 percent from the previous month, reaching Rs36.55 trillion. On a year-on-year basis, the increase was particularly notable at 26.3 percent, underscoring a strong and sustained shift toward government securities. The Investment to Deposit Ratio climbed to 104 percent, up 226 basis points from September and 1,098 basis points higher year-on-year. This ratio’s rise indicates that banks are allocating more than their entire deposit base toward sovereign instruments, demonstrating a marked preference for low-risk assets in an environment of high fiscal borrowing requirements.
A deeper analysis of scheduled banks’ balance sheet trends from January 2019 to October 2025 reveals a long-term structural transformation in Pakistan’s banking sector. The data shows robust deposit expansion of 169 percent during this period, climbing from Rs13.06 trillion in early 2019 to Rs35.15 trillion in October 2025. However, credit growth dramatically lagged behind, increasing only 76 percent over the same period. This imbalance has led to the collapse of the Advances to Deposit Ratio from around 60 percent in 2019 to just 39.2 percent in 2025.
Meanwhile, investments soared by 586 percent, rising from Rs5.22 trillion in 2019 to Rs35.82 trillion in 2025. This shift pushed the Investment to Deposit Ratio from 40 percent to a record 101.9 percent, marking a fundamental reorientation away from private-sector lending and toward government debt instruments. The trend intensified following the COVID-19 pandemic, when banks increasingly favored sovereign securities that offered attractive risk-adjusted returns during periods of heightened uncertainty.
The slight deposit contraction observed in October adds a fresh dimension to the evolving situation. While minor on its own, the decline could indicate the beginning of deposit-side pressures after years of continuous inflows. The ongoing reorientation of the banking sector toward government financing carries significant implications for the broader economy, raising concerns about limited credit availability for businesses, constrained private investment, and potential long-term impacts on economic growth.
The latest data underscores an ongoing transformation in Pakistan’s financial intermediation model and signals a need for broader policy discussion around restoring balance between public-sector borrowing and private-sector credit allocation.
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