Pakistan Banks Association welcomes FY2026-27 budget, pledges expanded lending to SMEs, housing

The Pakistan Banks Association (PBA) on Monday welcomed Pakistan's federal budget for fiscal year 2026-27, calling it the first in years to move beyond crisis management while maintaining the fiscal discipline that underpinned the country's economic recovery.

The sector enters the new fiscal year with lower interest rates, a restored primary surplus and sovereign credit upgrades from Moody's, Fitch and S&P.

What did the Pakistan Banks Association say about the FY2026-27 budget?

The PBA described the FY2026-27 budget as balanced and growth-oriented. It said banks are well-positioned to expand private-sector lending, citing a 3.6% GDP fiscal deficit target, a 2% primary surplus and measures supporting exporters, IT firms and lower-income taxpayers.

PBA Chairman Zafar Masud said lending conditions are the most favorable in over a decade.

What are banks' key lending commitments under the new budget?

The PBA outlined three major financing targets, all to be met by 2028. The association aims to grow SME lending from PKR 882 billion to PKR 1.5 trillion, expand housing finance to support 500,000 government-backed units, and push annual agricultural financing disbursements above PKR 3.5 trillion. The industry will also continue backing export financing and social impact projects in education and skills.

Masud said the budget had created favorable conditions for lending to priority sectors. "This is a budget the industry can build on," he said. CEO and Secretary General Muneer Kamal added that credit would keep flowing to housing, exports, technology and SMEs as the primary drivers of job creation in the next growth phase.

What progress has the banking sector already made in priority lending?

SME financing has nearly doubled in both value and borrower numbers over the past two years. In agriculture, a decline in borrowers recorded since 2019 has been reversed, with banks targeting 4 million borrowers by 2028.

Housing finance showed sharper acceleration: banks approved PKR 100 billion for roughly 67,000 beneficiaries within two months, compared with PKR 225 billion approved across the previous six years.

How has Pakistan's banking sector performed heading into FY2026-27?

The PBA said the sector remains strong, liquid and well-capitalized, reporting a capital adequacy ratio of 21.4%. Over the past two years, banks coordinated the restructuring of PKR 1.225 trillion in power-sector circular debt at concessional rates and restructured PKR 268 billion in debt tied to Pakistan International Airlines to support its privatization. Banks also voluntarily reduced margins on the Export Refinance Facility, bringing export financing costs down to 4.5%.

The broader macroeconomic picture reinforces that confidence. Workers' remittances reached a record $38.3 billion, the Roshan Digital Account initiative mobilized more than $12 billion, and the banking system now serves around 103 million depositors through nearly 268 million deposit accounts. The government has set a 4% economic growth target for FY2026-27, and the PBA said the budget's mix of fiscal caution and growth measures could help shift activity further toward private-sector credit.