Pakistan’s banking sector experienced a sharp recalibration in August 2025 as both deposit and lending rates continued to move lower, reflecting the impact of the State Bank of Pakistan’s monetary easing cycle. Official data shows that the returns on deposits have fallen significantly, while lending rates are moderating at a slower pace, reshaping the dynamics between depositors and financial institutions.
The weighted average return on bank deposits dropped by 58 basis points during August, settling at 5.32% compared with 5.91% in July. For savers, this decline marked yet another reduction in already compressed returns, amplifying concerns about the erosion of real value when compared to inflation trends.
On an annual comparison, the fall in deposit rates appears even more pronounced. From August 2024 to August 2025, the weighted average deposit rate contracted by a staggering 1,344 basis points, down from 18.76% a year earlier. This dramatic shift highlights how quickly savings returns have diminished in line with broader adjustments in the economy and interest rate environment.
Lending rates, however, have eased at a slower pace. The weighted average lending rate for scheduled banks in August stood at 11.87%, representing a 12 basis point reduction compared with July. While this month-on-month change may seem modest, the yearly trend paints a clearer picture of the monetary environment. Compared with August 2024, lending rates are down 717 basis points, underscoring the scale of the easing cycle and the reduced cost of borrowing for businesses and individuals.
The divergence between falling deposit and lending rates widened banks’ spread to 655 basis points in August, up 47 basis points from 608 basis points in July. For banks, this expansion provides some relief by cushioning margins at a time when credit growth and liquidity management remain crucial. However, for depositors, the trend underscores diminishing returns and limited opportunities for wealth preservation through conventional savings instruments.
When adjusted for inflation, the real deposit rate eased slightly to 1.89% in August, compared with 1.96% in July. Meanwhile, the real lending rate rose to 8.44%, up from 8.04% in the previous month. This gap indicates that while borrowers benefit from lower nominal lending rates, they are still paying significant real costs, whereas depositors face compressed returns with limited inflation-adjusted gains.
Analysts note that this realignment of rates reflects both the macroeconomic pressures and the policy stance of the State Bank of Pakistan. By maintaining a lower policy rate, the central bank is attempting to support growth and provide relief to borrowers, but the move has come at the expense of savers who now earn less on deposits.
The ongoing trend also points to structural shifts in the financial sector. Banks may enjoy healthier spreads in the near term, but sustained declines in deposit rates could challenge savings mobilization. Policymakers will need to balance these dynamics to ensure stability in the banking ecosystem while supporting broader economic growth.
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