Banks’ Deposit Mobilization Slows Down

According to the State Bank of Pakistan’s (SBP) Financial Stability Review – 2024, published on Thursday, Pakistani banks experienced a slowdown in deposit mobilization during the year ending December 31, 2024. This deceleration occurred as banks increasingly focused on boosting their advance-to-deposit (ADR) ratios.

The report indicated that this shift led to a greater reliance on borrowing to finance asset growth throughout the year.

The Stability Review included an assessment of the performance and risk profiles of various financial sector components, such as banks, microfinance banks (MFBs), development finance institutions (DFIs), non-bank financial institutions (NBFIs), insurance companies, financial markets, and financial market infrastructures (FMIs). The financial health of the non-financial corporate sector, a significant user of bank credit, was also evaluated.

Data from the central bank revealed that bank deposits totaled Rs30.28 trillion at the close of December 2024, a decrease of Rs1.06 trillion (3.5%) from the Rs31.34 trillion recorded in September 2024.

The SBP stated, “Deposit mobilization lost steam as banks aimed to improve their ADR ratios. Consequently, the sector’s dependence on borrowings increased to support asset expansion.”

The central bank added, “Banks’ earnings remained stable, supported by higher volumes of earning assets, even as declining interest rates led to a slowdown in earnings growth.”

Reportedly, banks worked to meet the government’s then-mandatory target of increasing advances during the final quarter of 2024.

To meet this objective, banks were required to increase their advances (credit to the private sector) to 50% of their deposits to avoid additional taxes of up to 15%.

To that end, banks apparently prioritized lending to the corporate sector and reduced their focus on attracting new deposits.

Subsequently, the government eliminated the ADR-based tax and increased the corporate income tax rate for banks by 5%, bringing it to 44% in late December 2024.

As a result, SBP data shows that deposits peaked at a new high of Rs31.63 trillion in March 2025.

The Stability Review report also noted that “To strengthen depositor confidence and improve safety nets, the deposit protection amount has been raised from Rs0.5 million to Rs1 million.”

The report highlighted the continued growth of Raast, the central bank’s instant payment system, which reached approximately 40 million users and processed almost 800 million transactions in 2024.

Moreover, the banking sector’s credit risk profile did not raise significant concerns, owing to adequate provisioning for non-performing loans, the report stated.

The adoption of the new accounting standards IFRS-9 (International Financial Reporting Standard) is expected to further improve banks’ risk management practices and bolster their financial resilience against loan portfolio delinquencies.

According to the SBP review, solvency indicators, such as the banking sector’s capital adequacy ratio (CAR), improved to 20.6% and remained significantly above both global standards and domestic minimum regulatory requirements.

The report noted that macroeconomic conditions improved significantly during CY24, as evidenced by easing inflationary pressures and subsequent monetary easing, fiscal consolidation, a stable rupee-dollar exchange rate, increased economic activity, and an improved external account balance.

Against this backdrop, the financial sector maintained its operational and financial resilience, growing at a solid rate of 17.8% during CY24.