Pakistan’s commercial banks are grappling with a major challenge as customers withdrew over Rs1 trillion in just the first two months of the current fiscal year 2025-26. According to fresh data released by the State Bank of Pakistan (SBP), withdrawals totaling Rs1.035 trillion were recorded in July and August, reducing total deposits to Rs34.46 trillion by the end of August, compared to Rs35.50 trillion at the close of June 2025.
This outflow follows what had been a historic high in deposit levels, as banks reported their strongest figures at the conclusion of fiscal year 2024-25. The sudden and significant decline has raised concerns within both regulatory and financial circles, as it signals shifting investor behavior and growing unease in the market.
Analysts attribute the sharp withdrawals to two key factors. First, the SBP’s decision to aggressively cut the benchmark interest rate has substantially reduced returns for depositors. After peaking at 22% last year, the rate has now dropped to 11%, lowering the incentive for individuals and businesses to park money in traditional savings or term deposits. This decline in returns has redirected funds toward alternative investment avenues such as equities, gold, and real estate.
Second, the new taxation measures introduced in the federal budget have fueled uncertainty among account holders. The Federal Board of Revenue (FBR) has intensified efforts to expand the tax base, with stronger enforcement tools including potential freezes of bank accounts belonging to non-filers. For many depositors, these developments have created a climate of caution, prompting them to withdraw funds and seek safer or more flexible options.
Market observers warn that the combined impact of reduced profitability for depositors and stricter tax enforcement could weigh heavily on the banking sector in the months ahead. Liquidity pressures may also surface if withdrawals continue at the same pace, forcing banks to reassess lending strategies and capital management.
The SBP, meanwhile, has emphasized that the financial sector remains stable and adequately capitalized. However, experts caution that confidence is fragile, and sustained outflows could undermine the ability of banks to channel funds toward economic growth. The move toward alternative investment vehicles, while beneficial for some sectors, risks weakening deposit-driven financing that underpins much of Pakistan’s credit and lending system.
Looking ahead, industry insiders suggest that banks may need to introduce more innovative savings products or explore profit-sharing models aligned with Islamic banking practices to retain customers. At the same time, fiscal authorities face the delicate task of balancing revenue mobilization with financial sector stability.
The deposit exodus underscores how closely Pakistan’s banking health is tied to monetary and fiscal policy decisions. As the fiscal year progresses, stakeholders will be watching closely to see if the trend stabilizes or if further interventions are required to prevent prolonged stress on the sector.
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