By Farooq Awan

Pakistan’s banking sector recorded a strong rebound in deposits, which grew by 24.7% in 2025, reinforcing liquidity conditions and supporting overall financial stability, according to the Financial Stability Review 2025 released by the State Bank of Pakistan (SBP).

The report indicates that the sharp increase in deposits marked a recovery from the slowdown observed in the previous year, when deposit mobilization had weakened due to policy and market factors. The improvement in 2025 reflects renewed confidence in the banking system, supported by macroeconomic stabilization, declining inflation, and improved financial conditions.

Strong deposit growth provided banks with a stable and cost-effective source of funding, enabling them to expand their balance sheets and maintain comfortable liquidity levels. The SBP noted that the increase in deposits also reduced banks’ reliance on borrowings, with the share of borrowed funds in total assets declining during the year. This shift helped create a more stable funding structure, enhancing the banking sector’s resilience.

The report highlights that improved economic conditions played a key role in supporting deposit growth. As inflation eased and purchasing power stabilized, households were better positioned to save, while businesses also increased their deposits amid improving financial conditions. Increased remittance inflows further supported deposit mobilization by boosting liquidity in the banking system.

In addition, greater financial inclusion and the expansion of digital banking services helped broaden the deposit base. Expanded access to financial services and wider use of formal banking channels drew more funds into the system, particularly from previously underserved segments.

The SBP noted that the growth in deposits supported liquidity management and enabled banks to meet regulatory requirements comfortably, including liquidity coverage and funding ratios. A strong deposit base also enhances the ability of banks to respond to changing market conditions and supports the smooth functioning of financial intermediation.

While deposit growth strengthened the sector, the report suggests that maintaining this momentum will depend on continued macroeconomic stability and sustained confidence in the financial system. External risks, including global economic uncertainty and potential shifts in capital flows, could influence liquidity conditions if they materialize.

The improvement in deposit mobilization also provides a foundation for increased lending activity as financial conditions continue to ease. With stronger funding capacity, banks are better positioned to support economic activity by extending credit to businesses and households.

The report underscores that a stable and growing deposit base remains central to the strength of the banking system, supporting both financial stability and economic growth in the medium term.

Credit: INP-WealthPk