Conventional banks cut private lending, Islamic financing rises to Rs657 billion

Conventional banks recorded a net retirement of Rs32.8 billion in private sector credit during July–March of FY26, indicating a halt in fresh lending, according to data from the State Bank of Pakistan.

The data shows that banks reduced exposure to the private sector in the first nine months of the fiscal year, contrasting with earlier trends of positive credit growth.

At the same time, lending through Islamic banking branches of conventional banks increased significantly, reaching Rs657 billion during the same period, compared to Rs115.8 billion a year earlier.

This shift indicates a growing preference for Shariah-compliant financing, even as conventional interest-based lending declined.

During FY25, conventional bank lending to the private sector stood at Rs405.7 billion, compared to Rs211 billion in FY24. The latest figures suggest a sharp reversal in this trend during the current fiscal year.

Data also shows that lending through Islamic branches had been rising steadily, with Rs157.8 billion recorded in FY25 and Rs55.5 billion in FY24.

Despite the increase, lending by full-fledged Islamic banks remains lower than that of conventional banks.

Banks have continued to allocate a significant share of their liquidity to government securities, with over 80 percent invested in bonds, while limiting credit to the private sector.