In a notable shift in Pakistan’s banking sector, total deposits held by scheduled banks decreased by 1.8% to Rs30.46 trillion in February 2025, compared to Rs31 trillion at the end of January 2025. Despite this decline, when compared to the same month in 2024, the deposits have shown a solid increase of 9.2%, rising from Rs27.89 trillion in February 2024. This reflects a broader trend of growth over the past year, although the recent dip in February has raised concerns within financial circles.
The reduction in bank deposits follows a broader trend in the financial sector where several macroeconomic factors have influenced the movement of capital in the banking system. Fluctuating interest rates, inflationary pressures, and changing consumer behavior have all played a role in the slowdown of deposit growth during the month of February. A deeper analysis of the underlying causes behind this drop could reveal key insights into consumer sentiment and banking sector dynamics.
Alongside the reduction in total deposits, total advances in the banking sector also showed a decline in February 2025. Advances decreased by 5.1%, falling to Rs13.97 trillion from Rs14.73 trillion a month earlier. This drop in advances comes after a year of relatively stable growth, raising concerns about the level of credit demand in the economy. However, when compared to the same period in 2024, the situation looks more promising. Advances have increased by 15.8% from Rs12.06 trillion in February 2024, indicating that despite a short-term dip, the long-term trend for credit expansion remains positive.
One of the key metrics to observe in the context of these developments is the Advances to Deposit Ratio (ADR), which stood at 45.9% in February 2025. This represents a decrease of 163 basis points on a month-on-month basis but a notable increase of 262 basis points when compared to February 2024. This increase suggests that while the total advances have decreased, the proportion of advances relative to deposits has improved over the past year, which could indicate that banks are becoming more efficient in utilizing available deposits for lending.
In a more positive development, total investments in the banking sector increased by 4.0% to Rs31.21 trillion in February 2025, compared to Rs30.03 trillion in January 2025. When viewed against the figures from February 2024, investments have surged by an impressive 22.7%. This increase in investments highlights that, despite the challenges facing the deposit and advance segments, banks have been able to grow their investment portfolios, potentially focusing on more secure and liquid assets.
The Investment to Deposit Ratio (IDR) saw a significant improvement during the month, moving up by 564 basis points to 102.5%. Compared to a year ago, the ratio has increased by 1122 basis points. This indicates that banks are allocating a higher portion of their deposits to investments, likely as a strategy to enhance returns in a volatile economic environment.
In conclusion, while the recent drop in bank deposits and advances signals short-term challenges, the increase in investments and the improved IDR suggest that Pakistan’s banking sector remains resilient. The positive growth in advances compared to the same month last year also provides a more optimistic outlook for the future. As the financial landscape continues to evolve, these trends will provide crucial insights into the overall health and stability of the banking sector in Pakistan.