Private sector lending falls to 22% of bank assets as govt borrowing dominates

• Pakistan lags the region as private credit-to-GDP trails India at 50% and Bangladesh at 40%

Pakistan’s banking sector has reduced its exposure to private sector lending, with loans accounting for only 22% of total assets as of March 2026, reflecting a shift towards financing government borrowing, The Express Tribune reported, citing data from compiled by Optimus Capital Management. 

Data shows total banking assets have reached around Rs60 trillion, while the sector’s assets-to-equity ratio has risen to 18 times, indicating increased leverage largely backed by holdings of government securities.

Analysts said banks are allocating a larger share of funds to Pakistan Investment Bonds and treasury bills, citing the lower risk and regulatory requirements associated with lending to the government compared to private sector borrowers.

They said that the limited availability of private credit has enabled banks to increase leverage to record levels without significant capital constraints. Compared with regional peers, Pakistan’s private credit levels remain lower, with the World Bank estimating private credit-to-GDP ratios of around 50% in India and 40% in Bangladesh.

The shift has also altered funding patterns, with wholesale borrowing accounting for 27.1% of total banking assets, equivalent to over Rs16 trillion. A significant portion of this liquidity is provided by the State Bank of Pakistan through open market operations.

This has created a cycle in which central bank liquidity is channelled to commercial banks, which then invest in government debt, supporting fiscal financing while limiting credit availability for businesses.

Analysts said the structure is partly driven by restrictions on direct government borrowing from the central bank under IMF arrangements, which aim to control inflationary pressures.

They added that limited access to credit is affecting business expansion and consumer financing, including housing and auto loans, while private sector credit growth remains low relative to overall liquidity.

The sector’s reliance on borrowing and concentration in government securities may expose it to risks if liquidity conditions tighten or fiscal policies change, analysts said.