Pakistan’s banking sector posted another month of steady growth in August 2025, with scheduled banks showing strong momentum in deposits and continued expansion in advances. However, the latest figures from the State Bank of Pakistan (SBP) highlight a noticeable tilt toward government securities, as banks increasingly prioritize safer investments over private sector lending.
According to SBP’s provisional data, total deposits rose sharply year-on-year, climbing 11.99% to reach Rs. 34.46 trillion in August 2025 compared to Rs. 30.77 trillion a year earlier. This increase underlines the ongoing shift toward financial inclusion and documentation of the economy, trends that have been reinforced by government policies aimed at digitization and transparency. On a month-to-month basis, deposits saw a smaller rise of 0.55%, up from Rs. 34.28 trillion recorded in July 2025.
Advances, meanwhile, also showed healthy growth, increasing 11.81% year-on-year to Rs. 13.2 trillion, compared to Rs. 11.8 trillion in August 2024. This reflects banks’ continued support for credit flows to the private sector, helping sustain business activity despite macroeconomic challenges. However, on a monthly basis, advances contracted slightly by 0.52% from Rs. 13.27 trillion in July 2025, suggesting some caution in extending new loans.
Key ratios from the data show a shift in the sector’s focus. The Advances-to-Deposit Ratio (ADR) stood at 38.31% in August 2025, marking a decline of 41 basis points (bps) month-on-month and 5 bps year-on-year. This signals that while deposits continue to expand, lending is not keeping pace, reflecting banks’ preference for maintaining more liquid assets in uncertain times.
On the investment side, the story is more striking. Scheduled banks’ total investments reached Rs. 36.28 trillion in August 2025, up from Rs. 36.19 trillion in July 2025. On a yearly basis, this represented a strong jump of 16.94% compared to Rs. 31.03 trillion in August 2024. The significant increase points toward banks’ growing inclination to park funds in government securities and other low-risk instruments that offer reliable returns.
This strategic tilt is further illustrated by the Investment-to-Deposit Ratio (IDR), which rose by 445 bps year-on-year to 105.28%. The figure exceeding 100% means banks are investing more than the deposits they hold, facilitated by borrowing from the central bank and other avenues. The rise in IDR, combined with the softening ADR, underscores a clear preference for sovereign debt over riskier private sector lending.
The broader context behind this behavior is tied to Pakistan’s economic headwinds. With inflationary pressures building and the government relying heavily on domestic borrowing, banks find it more attractive to allocate funds to government securities that provide both safety and yield. The SBP’s current monetary policy stance, expected to remain firm amid inflation risks and the economic impact of recent floods, further supports this approach. Supply chain disruptions, especially in agriculture, are projected to keep price levels elevated, reinforcing banks’ cautious lending posture.
The August 2025 snapshot reflects not just a temporary strategy but a reinforced pattern shaped by fiscal realities and monetary constraints. By channeling funds into sovereign instruments, banks are insulating themselves against credit risk but also limiting financing opportunities for the private sector. While this may provide stability to bank balance sheets, it raises concerns about restricted access to capital for businesses, potentially slowing down economic recovery efforts.
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