The banking sector in Pakistan has reported a notable improvement in its Advance-to-Deposit Ratio (ADR), which reached 51.8% by December 27, 2024, according to the latest data released by the State Bank of Pakistan (SBP). This marks a significant recovery from the ratio’s low of 38.4% in August 2024, reflecting a rise of 13.5 percentage points over the span of four months.
The increase in ADR comes alongside a surge in bank advances, which grew by an impressive Rs. 700 billion during this period. By the end of December, total advances in the banking sector stood at Rs. 15.6 trillion, compared to Rs. 14.9 trillion at the end of November, representing a robust 4.7% month-on-month (MoM) growth.
Despite the rise in advances, bank deposits witnessed a contraction of 3.2% over the same period, dropping from Rs. 31.1 trillion in November to Rs. 30.1 trillion as of December 27, 2024. This decrease in deposits, combined with the substantial growth in advances, has contributed to the improvement in the ADR.
In its commentary, Arif Habib Limited highlighted the significance of this recovery, noting that the 13.5-percentage-point increase in ADR demonstrates the banking sector’s growing focus on lending activities. The data further underscores a 32% increase in advances from August to December 2024, juxtaposed with a 2.3% decline in deposits during the same period.
The sector also recorded a slight uptick in investments, which rose by Rs. 0.3 trillion, or 1% MoM, in December to reach Rs. 29.3 trillion. This modest growth indicates a steady approach toward investment activities in the banking sector. The investment-to-deposit ratio (IDR) stood at 97.3% as of December 27, reflecting the sector’s emphasis on balancing investment and deposit flows.
The recovery in ADR marks a positive shift for Pakistan’s banking sector, signaling improved lending activities that could drive economic growth. The rise in advances, despite a contraction in deposits, highlights the growing demand for credit and the banking sector’s response to meet this need.
This trend is significant for the broader financial landscape, as a higher ADR typically indicates better utilization of deposits for productive purposes. It also reflects a more active role of banks in supporting businesses and individuals through increased lending.
The slight increase in investments, although not as pronounced as the growth in advances, complements the broader recovery in banking activities. With the IDR nearing 100%, banks appear to be optimizing their resources to balance lending and investment objectives.
The latest figures from the SBP underscore the banking sector’s resilience and adaptability in navigating challenging economic conditions. As lending activities continue to rise, the sector is poised to play a crucial role in driving economic growth and supporting Pakistan’s financial stability.
The improvement in ADR, alongside other key metrics, sets a positive tone for the banking sector’s outlook in 2025. This recovery could pave the way for enhanced credit access, greater economic activity, and strengthened confidence in the financial system.