KARACHI: Deposits in Pakistan’s banking sector reached Rs31.03 trillion in January 2025, reflecting a 12.6% year-on-year (YoY) increase, according to data released by the State Bank of Pakistan (SBP) on Thursday. On a month-on-month (MoM) basis, deposits rose by 2.4%, indicating continued financial sector expansion.
Meanwhile, total advances in the banking sector climbed to Rs14.73 trillion, up 21.8% compared to last year. However, advances saw an 8% decline on a MoM basis, highlighting a more cautious lending approach by banks. Analysts attributed this trend to policy adjustments, particularly the removal of taxation linked to the advance-to-deposit ratio (ADR).
“Banks are returning to focus on attracting deposits and are becoming more cautious about providing advances following the removal of ADR-related taxation,” said Awais Ashraf, Director of Research at AKD Securities Limited.
As a result, the ADR for the sector dropped to 47.5% in January, down from 52.9% in the previous month. Last year, the ADR stood at 43.9%.
On the investment front, banks’ holdings rose to Rs30.02 trillion in January, reflecting a robust 17.3% YoY increase. MoM, investments grew by 3.1%, suggesting a preference for safer, government-backed instruments amid economic uncertainty.
The improving financial performance of Pakistani banks has drawn attention from global credit rating agency Moody’s, which recently upgraded the sector’s outlook from stable to positive. Moody’s cited the strengthening financial position of the government—currently rated Caa2 with a positive outlook—as a key driver of this optimism.
Pakistani banks remain heavily exposed to sovereign debt, with government securities accounting for 55% of total banking assets as of September 2024. While this linkage boosts banks’ stability as the government’s fiscal position improves, Moody’s cautioned that long-term debt sustainability risks persist due to high liquidity pressures and external vulnerabilities.
Despite a rise in non-performing loans to 8.4% of total loans as of September 2024—up from 7.6% a year earlier—loans still make up only 23% of banks’ total assets, minimizing systemic risk.
The sector’s strengthening fundamentals signal confidence among investors and policymakers, although sustained fiscal prudence and economic stability will be key to maintaining momentum.
