KARACHI:

Pakistan’s banking sector has expanded dramatically in size and reach over the past five decades, with strong growth in monetary assets, bank deposits and foreign exchange reserves, according to a new analysis based on legacy financial records from the State Bank of Pakistan (SBP).

The report, titled “Long-Run Pakistan Analysis on Financial Development Structure (1970-2021)” released by Gallup Pakistan, examines how the country’s financial system evolved from a small, relatively simple structure and largely cash-based economy into a much larger banking and financial network.

Pakistan’s total monetary assets increased from less than Rs25 billion in the early 1970s to more than Rs69 trillion by 2021. The rise reflects long-term financial deepening, expansion of banking services and higher economic activity over the decades. Currency in circulation also recorded strong growth during the same period. The amount of cash in the economy increased from around Rs5.4 billion in 1972 to more than Rs7.3 trillion by 2021. The increase reflects both economic expansion and continued reliance on cash transactions in different parts of the country.

Bank deposits grew even more sharply during the period. Total deposits with scheduled banks increased from Rs19.2 billion in 1972 to more than Rs13 trillion by 2021. Deposit growth accelerated after the early 2000s. Banking reforms, technological changes and wider access to financial services encouraged more individuals and businesses to use formal banking channels.

The rise in deposits also reflects stronger savings mobilisation within the banking system and a gradual increase in the use of institutional financial services. Foreign exchange reserves, including gold, also expanded significantly during the period. Pakistan’s reserves increased from about Rs3.1 billion in 1972 to roughly Rs3.9 trillion by 2021.

However, the level of reserves showed notable volatility – influenced by external economic conditions, trade flows and international financial movements. “The expansion in Pakistan’s monetary aggregates over the past five decades reflects a clear trend of financial deepening and economic growth,” Arif Habib Limited (AHL) Economist Sana Tawfik told The Express Tribune.

Currency in circulation has increased significantly, indicating greater transactional demand and the overall expansion of economic activity, she said. Similarly, the sharp rise in bank deposits highlights stronger financial intermediation within the banking system.

However, part of the increase in deposits may also be attributed to higher inflows of workers’ remittances and periods of relatively elevated interest rates that incentivised savings within the formal banking system, she added.

Commenting on foreign exchange reserves, Tawfik said Pakistan recorded substantial long-term expansion despite experiencing periodic volatility linked to external sector pressures.

These fluctuations were often influenced by shifts in trade balances, capital inflows and broader global economic conditions. Overall, these developments illustrate the evolution of Pakistan’s financial system from a relatively narrow and less developed framework into a more expansive and mature structure. They also reflect changing drivers behind deposit growth and financial participation within the economy, the economist noted.

The time-series data also highlights a structural shift within the banking sector. Bank deposits and credit have become increasingly concentrated in larger account sizes, particularly accounts holding more than Rs1 million.

This trend became more visible after 2010 as high-value accounts represented a growing share of overall deposits and lending within the financial system.

The shift indicates a gradual move towards larger institutional accounts and higher-value banking activity within the formal financial sector. However, the data also points to several challenges within the financial system. The increasing concentration of deposits and credit in large accounts suggests that wealthier individuals and large firms dominate formal banking activity.

Many small savers and borrowers remain outside the formal financial system. The continued high level of currency in circulation also indicates that cash remains widely used across the economy. This reflects limits in financial inclusion and digital adoption in some parts of the country.