Pakistan's banking sector deposits see 17.9% growth in October

Pakistan’s banking sector experienced a substantial growth in deposits in October, despite continuous monetary easing.

The sector’s deposits increased by 17.9% to PKR 31.1 trillion from PKR 26.4 trillion in the same period last year, according to official data.

This impressive growth in deposits outpaced the 15.8% rise in advances, which reached PKR 13.8 trillion during the same period.

Investments of the banking sector also saw a significant jump, increasing by 24.6% to PKR 28.9 trillion from PKR 23.2 trillion in October last year.

The Investment to Deposit Ratio (IDR) stood at 93% in October.

Commercial banks' income

Commercial banks reported a double-digit growth in core income for the quarter ended September 30 as a relatively higher decline in funding costs compared to asset yields helped net interest income to grow sequentially.

As Pakistan's central bank continues its monetary easing cycle, secondary market yields have seen a sharper drop. Consequently, these yields traded below the policy rate throughout the quarter.

Analysts anticipate an improvement in banking sector profitability, driven by deposit repricing as the monetary easing cycle gains momentum. This repricing will gradually lower deposit costs, supporting overall margins for banks.

The advances to deposit ratio (ADR) of banks stood at 44.3% in October, down 79 basis points from last year. Banks are required to achieve 50% ADR by year end to avoid additional taxes.

During the first nine months of 2024, the banking sector maintained its soundness. The asset base expanded by 11%, reaching PKR 49.942 trillion as of September 30, compared to PKR 45.067 trillion on December 31, 2023.

Despite political volatility and ongoing structural challenges, Pakistan’s economy has been recovering gradually. In its recent staff report on Pakistan, the IMF noted positive developments such as easing fiscal pressure, the consistent implementation of reforms and improving financial conditions and business confidence.

Based on these developments, the IMF has revised its GDP growth projection at 3.2% for FY25 and 4.0% for FY26, in the July World Economic Outlook.

The IMF also estimates a sharp decline in domestic average inflation, from 23.4% in 2024 to 9.5% in 2025, as mentioned in its staff report on Pakistan.