Pakistan’s banking sector recorded a recovery in its gross Advance-to-Deposit Ratio (ADR) in December 2025, reversing a declining trend observed in recent months, according to data released by Arif Habib Limited. The improvement reflects a combination of strong deposit growth and a month-on-month increase in advances, although lending activity remains subdued on an annual basis.
The brokerage firm reported that the ADR rose to 39.8% in December 2025, up from 37.9% in November. This represents a month-on-month increase of 182 basis points, signalling a short-term improvement in banks’ willingness to extend credit. Despite this rebound, the ratio remains significantly lower on a year-on-year basis. In December 2024, the ADR stood at 52.9%, making the current level lower by 1,311 basis points compared with the same period last year.
Alongside changes in lending behaviour, the Investment-to-Deposit Ratio (IDR) declined on a monthly basis, falling to 101.3% in December from 103.8% in November. This marks a month-on-month decrease of 254 basis points. However, on a year-on-year comparison, the IDR remained elevated, rising by 509 basis points from 96.2% recorded in December 2024. The data suggests that banks continue to allocate a substantial share of their deposits toward investments, particularly in government securities.
Analysts note that the higher IDR on an annual basis reflects a persistent preference among banks for risk-free or low-risk investment avenues, driven by attractive yields on government papers and muted demand for private sector credit. Elevated interest rates for much of the year and economic uncertainty have constrained borrowing appetite among businesses, encouraging banks to prioritise investments over advances.
Deposit mobilisation remained a key strength for the banking sector in December. Total deposits increased by a strong 23.6% on a year-on-year basis and 5.8% month-on-month, reaching Rs37.4 trillion. This robust growth highlights continued confidence in the banking system and reflects inflows from both individual and corporate depositors amid limited alternative savings options.
Investments expanded at an even faster pace than deposits and advances. Total investments rose by 30.1% year-on-year to Rs37.9 trillion, underscoring the sector’s continued tilt toward government securities and other approved investment instruments. The faster growth in investments compared with deposits further explains the elevated IDR levels observed during the period.
Advances showed mixed performance. Gross advances stood at Rs14.9 trillion in December 2025, recording a sharp month-on-month increase of 10.9%. This suggests some revival in credit activity toward the end of the year, possibly linked to seasonal factors and working capital needs. However, on a year-on-year basis, advances remained 7.1% lower, indicating that overall private sector credit growth has yet to regain momentum.
Market participants view the December rebound in ADR as a positive, albeit tentative, development. Sustained improvement in lending will depend on macroeconomic stability, easing interest rates, and improved business confidence. Until these conditions strengthen, banks are expected to continue balancing cautious lending with heavy investment in government securities.
Overall, the December 2025 data reflects a banking sector supported by strong deposit growth and solid investment income, while credit expansion remains constrained. The gradual improvement in ADR suggests some recovery in lending activity, but the persistently high IDR highlights the sector’s continued reliance on investments rather than broad-based private sector financing.
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