Pakistan banks lent PKR 1.5T to private sector as govt borrowing slows

Pakistan banks extended loans of up to PKR 1.5 trillion to the private sector in FY26 as banks look to lend money to businesses amid a slowdown in government borrowing,

The surge in financing to the private sector was a key driver of the 8.33% growth recorded in the country’s industrial output, the representative body of commercial banks has said.

In a statement, the Pakistan Banks Association (PBA) highlighted the banking sector’s robust contribution to Pakistan’s ongoing economic revival, citing a record surge in private sector credit during the current financial year.

“The latest data demonstrates a clear fundamental economic reality: when government borrowing moderates, banks immediately and effectively deploy capital into business, industry, and agriculture,” said Zafar Masud, Chairman, PBA.

“The banking sector has successfully pivoted liquidity from sovereign debt to the productive private economy, serving as the primary engine for the recent industrial recovery.”

The banking sector remains highly liquid and well-capitalized, with deposits standing at Rs 35.1 trillion.

The PBA emphasized that the spike in lending was “not an anomaly but a reflection of what the banking sector is capable of when structural distortions, specifically excessive government reliance on domestic banking deposits, are eased”.

Muneer Kamal, CEO and General Secretary of PBA said banks were always willing to lend. However, the sector needed conducive policy environment, risk-sharing frameworks, and market-led mechanisms that make private sector lending attractive and sustainable.

Addressing the long-standing critique that banks prioritize only large corporations, the PBA emphasized that the recent credit flows represent a strategic shift toward accommodating the sectors that have historically struggled the most to access financing.

The banking sector has successfully channeled record liquidity into Small and Medium Enterprises (SMEs) and agriculture, ensuring that the benefits of improved liquidity are shared across sectors.

According to PBA, SME borrowers rose by 56.9%, increasing from 176,246 in June 2024 to 276,578 a year later, while outstanding SME financing jumped 40.7% to PKR 691 billion.

In terms of credit to the agriculture sector, FY25 marked a “historic turning point” as for the first time since 2019, the banking sector reversed a six-year decline in the agricultural borrower base.

The number of farmers accessing credit rose 7.3% to nearly 2.9 million. This resurgence was supported by record disbursements of PKR 2.57 trillion, up 16.3% year-on-year, and an outstanding portfolio of PKR 995 billion.

The PBA said that, as government borrowing subsidies, banks are pivoting to support the private sector. The body reaffirmed its commitment to partnering with regulators to expand credit access, particularly through sector-specific initiatives in SMEs, housing, agri value chains, logistics, and renewable energy.