The return on bank deposits in Pakistan has declined once again, with the weighted average deposit rate falling by 14 basis points (bps) to 3.35% in June 2025, compared to 3.49% recorded in May. This trend, reported by the State Bank of Pakistan (SBP) in its latest monthly data, highlights the ongoing challenges faced by savers in an environment marked by persistent inflation and negative real returns.
On a year-on-year basis, the decline is even more stark. Compared to the same month last year, when the average return on deposits stood at 11.09%, the rate has now plunged by 774bps. This marks a significant erosion in the incentive for depositors to park their savings in traditional banking products.
In contrast, lending rates across scheduled banks have also softened but not at the same pace. The average lending rate fell by 59bps in June to 11.66%, compared to May. On a year-over-year basis, the decline is 766bps, indicating a parallel trend of falling returns on both deposit and lending sides, though lending remains significantly higher.
As a result, the banking sector’s spread — the difference between lending and deposit rates — narrowed to 831bps in June, down by 44bps from 875bps in the previous month. While this compression signals lower profitability margins for banks, it may also reflect a broader shift in monetary conditions, influenced by easing inflation and a more dovish outlook on policy rates.
Despite lower deposit returns, the total stock of deposits has surged by 19.10% over the past year, reaching Rs30.6 trillion. This growth suggests that savers continue to rely on the formal banking system, possibly due to limited alternatives, increased digitization, or a general preference for liquidity amid economic uncertainty.
However, when adjusted for inflation, the real deposit rate remains deeply negative. In June 2025, the real return on deposits stood at -5.36%, a decline of 536bps from the previous month and from the same period last year. This underlines a continued loss in purchasing power for depositors, a pressing concern in a country where inflation remains among the highest in Asia.
The real lending rate, however, has managed to stay marginally positive. It stood at 0.19% in June, up 19bps compared to both May 2025 and June 2024. While this indicates an improvement for lenders, the minimal margin suggests constrained profitability and limited room for aggressive credit expansion unless inflation falls further or policy support strengthens.
The latest figures reinforce concerns around the erosion of real returns in Pakistan’s banking system, which could have long-term implications for savings behavior, investment choices, and consumer confidence. With inflation still outpacing nominal returns, there is an urgent need for more adaptive monetary strategies, deeper financial product innovation, and broader fiscal stability to protect depositors and maintain systemic trust.
As Pakistan’s monetary authorities balance inflation control with growth revival, the disconnect between nominal deposit rates and actual consumer price trends remains a critical metric to watch — especially for middle-income savers and retirees who depend on bank deposits as a secure form of income.