Bank deposits rise 12pc in August

KARACHI: Bank deposits in Pakistan rose 12 per cent year-on-year (YoY) in August 2025, driven largely by households, even as businesses kept cash out of the system. Advances climbed 12.3 per cent from a year earlier but dipped 0.6 per cent month-on-month (MoM), while investments rose 17 per cent YoY and 0.3 per cent on the month, central bank data show.

Structural liquidity constraints and return dynamics largely influence corporate deposit behaviour in Pakistan. Businesses operate under high working capital pressures, with high energy costs, imported raw materials and logistics eroding their cash buffers. Even when revenues increase, liquidity is quickly reinvested into paying suppliers, financing inventories or servicing short-term credit lines. In contrast, individuals and families often view banks as safe custodians for their savings or as a source of liquid assets.

At the end of August, total banking deposits in Pakistan reached Rs33.8 trillion, according to figures from the State Bank of Pakistan. More than 49 per cent of these deposits, totalling Rs16.7 trillion, are categorised as personal and belong to the salaried class, self-employed individuals, students, housewives, and others. Meanwhile, the contribution of the private sector to banking deposits is 20.3 per cent, amounting to Rs6.9 trillion. However, private sector borrowing has risen to Rs9.7 trillion by August. This indicates that businesses are actively borrowing but not maintaining significant deposits in banks.

“Maintaining sizable bank deposits is viewed as inefficient: deposit rates remain well below the cost of borrowing, so excess funds are better deployed in operations or used to deleverage. This explains why corporate deposits remain modest compared to the scale of private sector borrowing,” said Saad Hanif, head of research at Ismail Iqbal Securities.

Households, on the other hand, display a very different savings pattern, he said. Despite negative real returns over the past year, personal deposits continue to dominate the banking system.

“This persistence reflects both structural and behavioural factors: salaries and remittances are channelled directly through banks, while limited access to sophisticated investment avenues leaves deposits as the most liquid and trusted option,” Hanif said. “In essence, households prioritise safety and transactional convenience over yield optimisation, creating a deposit base that is far more stable than corporate balances.”

Syed Furrukh Zaeem, head of treasury at JS Bank Limited, said the private sector only keeps working funds or employee provident funds in investment/term deposit receipts of banks.

“If the industry is productive and booming with orders, then you will see low growth from the private sector, plus they can directly invest funds in the government funds or mutual funds, which will not be part of deposit calculations,” Zaeem said.

When businesses avoid keeping deposits in banks, their surpluses don’t translate into measurable financial savings. Instead, liquidity gets locked in inventories, receivables, or real assets that don’t add to the formal pool of loanable funds. This leaves household deposits to carry most of the weight, keeping Pakistan’s overall savings rate low. The result is a persistent savings investment gap, which forces the country to rely more on remittances and external borrowing to finance growth. Pakistan’s savings rate is just 7.4 per cent of GDP, compared with 27 per cent in the greater South Asian region.

The key question is whether Pakistani savers genuinely want to keep their funds in bank accounts and other investment options. As of 2025, the currency in circulation in the country exceeds Rs9.4 trillion and has remained within this range for the last two years.

Awais Ashraf, director of research at AKD Securities Limited, said the growth of private sector credit remained nearly half that of personal deposits, mainly due to economic growth prompting the private sector to invest more in working capital, and companies shifting deposits toward mutual funds following the removal of the minimum deposit rate from January 2025. In addition, banks remained focused on mobilising low-cost deposits amid the easing interest rate.

Banks are currently offering a minimum return of 9.5 per cent on deposits, which, after tax deductions, amounts to 7.6 per cent, given that there is a 20 per cent withholding tax. This month, the SBP kept its benchmark interest rate unchanged at 11 per cent for the third consecutive time. Inflation is projected to be around 6-7 per cent for September, leading to positive real interest rates. The central bank has reduced the policy rate by 1,100 basis points since June 2024.

The research and publications department of the Institute of Cost and Management Accountants of Pakistan (ICMA) believes that high interest rates and significant government borrowing have made it more profitable for banks to invest in government securities rather than mobilise business deposits. For businesses, the complex compliance requirements, higher transaction costs, and aggressive tax enforcement, including the Federal Board of Revenue’s extensive scrutiny and arrest powers, have discouraged them from keeping funds in banks. The ICMA indicates that many firms report receiving inquiry notices for maintaining balances, which has eroded trust in both banks and regulators.

“As a result, many enterprises, especially SMEs, prefer to retain cash or foreign currency for flexibility. Weak recovery mechanisms, informality in the economy, and the absence of business-oriented deposit products further limit incentives to park funds in banks,” the ICMA said.

“The recent floods have compounded these issues. Losses to Kharif crops and supply chain disruptions are expected to weaken the repayment capacity of agricultural borrowers, reducing liquidity inflows from rural and agri-linked sectors,” it added.

To reverse this trend, the ICMA suggests that banks need to develop tailored deposit products for SMEs. Additionally, regulators must simplify compliance and reduce tax-related disincentives so that businesses can perceive formal banking channels as supportive rather than punitive.

“With household deposits now making up nearly half of the total, banks are increasingly reliant on retail funds instead of business accounts. While retail deposits are stable, this reliance has widened the credit-deposit gap and restricted the supply of long-term finance to the private sector,” it said.

At the same time, banks remain heavily invested in government securities, which now constitute over 70 per cent of their assets. This structural imbalance reduces the flow of credit to businesses, slows down investment and job creation, and increases exposure to fiscal and interest rate risks. It also encourages more firms to operate informally, undermining financial deepening and the tax base, according to the ICMA.