KARACHI: Pakistani banks have disbursed an unprecedented Rs880 billion in credit to the private sector between July 1 and November 15 of the current fiscal year (FY25), driven by a need to meet stringent regulatory targets and avoid additional tax penalties.
According to the latest figures from the State Bank of Pakistan (SBP), this surge marks a sharp contrast to the Rs82.4 billion net retirement recorded during the same period last fiscal year. Of the total disbursement, Rs647 billion was issued by conventional bank branches, while Islamic banks contributed Rs258 billion. However, Islamic banking branches of conventional banks saw a decline of Rs25 billion.
The accelerated lending stems from government measures tying tax penalties to banks’ failure to achieve a 50% Advance-to-Deposit Ratio (ADR) by December 31, 2024. To meet the ADR threshold, banks must extend nearly Rs1.5 trillion in additional loans by the deadline, prompting aggressive lending strategies across sectors such as agriculture and manufacturing.
This lending spree has fostered healthy competition among banks but also raised concerns over loan quality and potential inflationary pressures. Analysts note that while the surge offers businesses much-needed financing opportunities, the rapid pace of disbursement could present systemic risks.
Earlier this month, some banks imposed a 5% monthly fee on deposits exceeding Rs1 billion to discourage large deposits and boost ADR compliance. However, the SBP’s removal of the Minimum Profit Rate (MPR) requirement on deposits from financial institutions, public sector enterprises, and public limited companies has led banks to withdraw the additional fee.
