​Pakistan bank deposits fall on back of lower interest rates

Pakistan’s commercial banks witnessed a sharp outflow of deposits totaling more than PKR 1 trillion during the first two months of the current fiscal year (2025-26), according to data released by the State Bank of Pakistan (SBP).

Between July and August, depositors withdrew PKR 1.035 trillion, reducing total bank deposits to PKR 34.46 trillion by the end of August. This marks a significant drop from PKR 35.50 trillion recorded on June 30 — the close of fiscal year 2024-25, which had seen the highest-ever deposit levels.

The sudden decline has raised concerns among regulators and market analysts, who cite a combination of falling interest rates and newly introduced tax measures as key drivers behind the withdrawals.

Ali Nawaz, the CEO of Chase Securities, said declining bank deposits may reflect improving economic activity, with funds being redeployed across various sectors of the economy.

As growth picks up, currency in circulation also tends to rise, which could partly explain the outflow from the banking system. Moreover, the first quarter of the financial year typically witnesses a seasonal downtick in deposits, Ali said.

Analysts have also said lower interest rates have made savings accounts a less favorable option for investors as they are now looking to park their money in more profitable asset classes, like stocks, gold, and mutual funds.

Since June 2024, the SBP has gradually slashed its benchmark policy rate from the historic high of 22% to 11%.

“The interest rate has been halved since June 2024, leading banks to reduce returns on deposits,” said Mustafa Mustansir, director of research at Taurus Securities. “Naturally, depositors are looking for better opportunities elsewhere.”

He also noted that seasonal factors may have contributed to the trend.

“Banks often show inflated deposit figures at the fiscal year-end in June, followed by withdrawals in the following months,” Mustansir added. “So, a dip in July-August is not entirely unusual.”

Another analyst said the trend is reflective of a broader shift in investor behavior.

“Lowering of interest rates changed a perception a bit, retail and institutional clients are reassessing the value of keeping idle cash in banks,” he said. “For many, the risk-adjusted returns from capital markets or real assets like gold now outweigh traditional deposits.”

Meanwhile, aggressive tax enforcement measures introduced in the federal budget have added to depositor anxiety.

The Federal Board of Revenue, the country's tax collection body, has begun efforts to expand the tax base, including potential freezing of bank accounts belonging to non-filers — a move that has reportedly prompted some account holders to move funds into less scrutinized or informal channels.

With interest rates down and tax-related fears rising, financial experts expect continued volatility in deposit behavior over the coming months