The return on bank deposits in Pakistan declined sharply in July 2025, dropping by 41 basis points to 2.98 percent compared to 3.39 percent recorded in the previous month, according to the latest official data. The decline reflects broader adjustments in the banking sector amid ongoing shifts in monetary policy, liquidity conditions, and inflationary pressures.
On a year-on-year basis, the drop has been even more pronounced. The weighted average rate paid for deposits by the banking sector has decreased by 1,612 basis points compared to 19.10 percent in July 2024. This substantial reduction highlights the changing dynamics of returns for savers, as well as the sector’s response to moderating inflation and evolving economic conditions.
While deposit rates have fallen, lending rates have displayed an upward adjustment. The lending rate for all scheduled banks stood at 11.99 percent in July, showing an increase of 32 basis points compared to June 2025. However, when compared to the same month last year, lending rates were down by 732 basis points, reflecting the broader decline in interest rates over the past year.
This divergence between falling deposit rates and rising lending rates has widened the sector’s profitability margin. Official figures show that the banking sector spread increased by 73 basis points to reach 901 basis points in July 2025, compared to a spread of 828 basis points recorded in June. A higher spread generally points to stronger profitability for banks but also reflects reduced benefits for savers who are seeing limited returns on their deposits.
In real terms, the picture remains challenging for depositors. After adjusting for inflation, the real deposit rate stood at negative 0.97 percent in July, meaning savers effectively lost purchasing power despite keeping their funds in banks. Conversely, the real lending rate stood at 8.04 percent, suggesting that borrowers are still facing relatively higher costs when adjusted for inflation.
Analysts note that the trends in deposit and lending rates underscore the challenges for monetary transmission in Pakistan’s financial system. With inflation gradually moderating, depositors are experiencing compressed returns, while banks continue to expand spreads that favor lending margins. This balance, while improving profitability for financial institutions, could dampen incentives for savings and channel funds into other investment avenues.
The ongoing adjustments in both deposit and lending rates will also play a critical role in shaping household financial decisions and corporate investment activity. Lower deposit returns may encourage greater movement toward alternative savings instruments, mutual funds, or capital market investments, while lending rate dynamics will influence credit demand from both businesses and consumers.
Looking forward, much will depend on the direction of monetary policy and inflation in the coming months. If inflation continues to ease, real returns on deposits may improve, but for now, savers remain under pressure. For banks, however, the widening spread signals healthier margins and stronger earnings potential, a trend that could reshape the financial landscape for the remainder of the fiscal year.