Islamic branches of conventional banks boost private-sector lending fivefold to Rs795.5 billion

Private-sector financing by the Islamic banking branches of conventional banks surged nearly fivefold to Rs795.5 billion in FY2025-26, highlighting a major shift in lending patterns across Pakistan’s banking sector.

State Bank of Pakistan data showed these branches had extended Rs153 billion to the private sector in FY2024-25.

By contrast, private-sector lending through conventional banking operations fell sharply to Rs139 billion in FY2025-26 from Rs405.7 billion a year earlier.

Full-fledged Islamic banks also reduced financing during the year. Their private-sector lending declined to Rs214.5 billion by June 26, 2026, from Rs518 billion in FY2024-25.

Overall private-sector credit across the banking system increased to Rs1.149 trillion in FY2025-26 from Rs823 billion a year earlier.

Banking industry participants attributed the growing use of Islamic banking branches to stronger profitability and lower returns offered to depositors compared with conventional banking.

Islamic banking assets and financing have consequently expanded faster than conventional banking operations.

Banks continued to earn a large share of their income from investments in government securities, including treasury bills and Pakistan Investment Bonds, rather than lending to businesses.