ISLAMABAD: Pakistan’s banking sector extended about Rs1.5 trillion in financing to the private sector during the current financial year, contributing to higher industrial activity, according to the Pakistan Banks Association (PBA).
The association said private sector credit growth during FY26 has coincided with an 8.33% increase in Large-Scale Manufacturing (LSM), reflecting higher liquidity available for businesses after a reduction in government borrowing from domestic banks.
Private sector credit rises as government borrowing moderates
According to PBA, the moderation in government borrowing has enabled banks to redirect funds toward business, industry, and agriculture. Speaking on the development, Zafar Masud, Chairman of PBA, said banks increase private lending when fiscal pressure on domestic deposits declines.
He noted that recent credit expansion shows a shift in bank lending patterns during periods of improved fiscal space.
Banking sector liquidity and deposit position
PBA said the banking sector remains liquid and well-capitalized, with total deposits standing at Rs35.1 trillion. The association stated that recent lending trends are consistent with historical patterns observed when policy conditions support private sector borrowing.
SME financing records sharp growth
Data shared by PBA shows a significant increase in Small and Medium Enterprise (SME) lending. The number of SME borrowers rose by 56.9%, from 176,246 in June 2024 to 276,578 in June 2025.
Outstanding SME financing increased by 40.7% to Rs691 billion, indicating higher credit flow to smaller businesses that traditionally face access constraints.
Agricultural credit rebounds after years of decline
The association said FY25 marked a reversal in the declining trend of agricultural borrowers. The number of farmers accessing bank credit increased by 7.3% to nearly 2.9 million, the first increase since 2019.
Agricultural disbursements reached Rs2.57 trillion during the year, up 16.3% year-on-year, while the outstanding agriculture portfolio stood at Rs995 billion.
Policy environment linked to lending patterns
According to Muneer Kamal, CEO and General Secretary of PBA, banks’ willingness to lend is influenced by the policy and risk environment. He said sustainable private sector lending requires market-based mechanisms, risk-sharing frameworks, and supportive regulations.
Future focus areas for bank lending
PBA said banks are expected to continue expanding credit access in sectors such as SMEs, housing, agriculture value chains, logistics, and renewable energy. The association also pointed to digital lending and data-driven credit assessment as tools to improve outreach and financial inclusion.
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