Pakistan’s banking sector is facing a critical challenge as the country’s deposits-to-GDP ratio has fallen to its lowest level among peer economies, according to the latest report released by the State Bank of Pakistan. This development highlights the widening gap between financial inclusion and actual savings behavior in the economy.
The report reveals that Pakistan has made substantial progress in expanding formal financial access. The share of adults with bank accounts increased sharply from 16 percent in 2015 to 64 percent in 2023. Despite this major leap, the growth in account ownership has not translated into an equivalent rise in savings.
The ratio of bank deposits to GDP fell from 36.9 percent in FY21 to 31.9 percent in FY24. This decline signals that the majority of new bank accounts are primarily being used for short-term transactions rather than as vehicles for savings and long-term capital accumulation. The trend also reflects the broader economic environment, which has discouraged individuals and businesses from holding their funds in banks.
The central bank attributed this weak deposit growth to heightened economic uncertainty and persistently low or negative real returns on deposits. As inflation has remained elevated, depositors have increasingly turned to alternative stores of value such as gold, real estate, and other inflation-hedging assets to protect their purchasing power. This shift away from bank deposits poses challenges for financial stability and investment financing.
The report cautions that the sharp decline in long-term deposits—those with maturities exceeding three years—could undermine the country’s ability to fund fixed investments. Such investments are essential for driving future economic expansion, job creation, and productivity improvements. A shrinking base of stable deposits can limit banks’ capacity to extend long-term financing for infrastructure, manufacturing, and other development-oriented projects.
The SBP further identified structural factors such as taxation policies and religious considerations as significant contributors to the decline. The imposition of withholding taxes on bank transactions and cash withdrawals has discouraged lower-income individuals and small cash-based businesses from maintaining substantial deposits in the banking system. Many prefer to operate outside formal banking channels to avoid these costs.
Additionally, religious reservations continue to shape depositor behavior. A 2015 Knowledge, Attitude, and Practices (KAP) survey revealed that 7.5 percent of respondents refrained from engaging with conventional banking products due to interest-based financial practices. This segment of the population remains underserved by traditional banks, limiting the deposit base further.
The central bank underscored the potential role of Islamic banking in reversing this trend. The ongoing transition toward interest-free banking solutions offers an opportunity to attract previously excluded segments of society. Expanding Shariah-compliant products, coupled with improved deposit incentives, may help deepen financial inclusion while encouraging a shift toward formal savings.
The SBP also emphasized the importance of developing a savings culture in Pakistan. Encouraging households to adopt habitual saving behavior, supported by financial education and more competitive deposit rates, is crucial for sustainable economic growth. A deeper deposit base not only strengthens financial intermediation but also enhances the capacity of the banking sector to support long-term investments.
The report concludes that strengthening deposit mobilization is essential for ensuring macroeconomic resilience, sustaining credit growth, and supporting the country’s development agenda. Policymakers and financial institutions are expected to work closely on measures that address both structural barriers and behavioral factors affecting savings.
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