Bank lending to Pakistan’s private sector declined by 79% to Rs395 billion from July to December 2025, compared to Rs1.871 trillion in the same period last year, despite interest rate cuts and signs of economic recovery, according to data from the State Bank of Pakistan (SBP).
The drop in private sector borrowing contrasts with the continued high demand for loans from the government. The federal government borrowed Rs 1.512 trillion from commercial banks in the first half of FY26, while it retired Rs 1.09 trillion in loans during the same period last year.
The Pakistan Banks’ Association (PBA) reported a steady rise in banking sector activity, with the advance-to-deposit ratio (ADR) increasing to around 38% by November. This growth was driven by an injection of Rs 1.5 trillion into private sector credit this fiscal year, as banks have begun to deploy liquidity more actively, particularly following a reduction in government borrowing. The PBA highlighted that the banking sector remains instrumental in supporting industrial output and job creation.
The SBP’s monetary policy statement for December showed a Rs 187 billion expansion in private sector credit from July to November FY26. This was attributed to easing financial conditions, improved consumer sentiment, and a stable macroeconomic environment.Â
However, year-on-year private sector credit declined by 0.3%, largely due to the high base effect from an extraordinary credit expansion in the second quarter of the previous fiscal year.
In response to improving conditions, the SBP reduced its benchmark interest rate by 50 basis points to 10.5% in December, signaling a continued effort to support economic growth. Since 2024, the central bank has cut rates by a total of 1,150 basis points, reflecting a shift towards more accommodative monetary policy.
